Rather than fear creating competition for their own credit card ventures, banks should view buy now pay later (BNPL) as a way to introduce new consumers to their wider suite of credit products and as a tool to fend off market challengers.
In the last few years, BNPL has swept to global prominence. With a mix of new lenders as well as more established players such as Klarna – with 85 million customers across 17 geographies – the BNPL sector looks set to take a larger share of the pie away from incumbent lenders.
Their key to success has been to introduce low- or no-cost consumer credit to a young audience before banks can get on the scene, and combining it with a message that credit is empowerment – spread primarily through social media and influencer channels.
In India, faced with the arrival of BNPL players such as Sezzle, Simpl, and LazyPay, Indian bank ICICI released a mobile-only BNPL option for in-store purchases, in addition to its online pay later option.
The bank has partnered with Indian merchant platform Pine Labs to let customers convert high-value purchases into three to eight monthly instalments. Customers pay no costs, need just a mobile phone number and password to sign up, and can use this offer for a range of big Indian and global electronics brands, such as Godrej and Dell respectively.
While to Western audiences the idea of partnerships with electronics brands sounds odd, ICICI is likely to be targeting customers buying homeware and electrical gifts for themselves and others to give during festivals such as Diwali. More importantly, however, ICICI has done something few large, incumbent banks have considered – offered BNPL itself.
Traditionally, the two main reasons lenders have avoided offering this product is market share and credit card worries. Until recently, BNPL has not been popular enough to warrant providing the service. Banks also fear offering their own BNPL proposition will make credit cards more difficult to promote, given both are consumer credit.
However, the consumer credit market is changing quickly, with BNPL globally one of the fastest-growing lending markets. In countries such as India, with a history of micro-finance loans for a range of products, BNPL is likely to become a sizeable part of the lending market.
Additionally, credit cards and BNPL can actually complement each other. The former’s strength lies in offering flexibility and rewards, while the latter often serves as a fixed credit option at little to no extra cost. This allows the two offerings to attract very different customers, which is the reason Klarna offers both a free BNPL option as well as a more flexible credit card-like product.
In ICICI’s case, its in-store BNPL proposition is likely to be a gateway for the bank to connect new customers without a borrowing history, during a time when buying gifts and purchases is likely to be more difficult to afford.
Rather than compete with an existing credit card business, BNPL can be a great way for lenders to introduce credit to new customers in a way that is affordable, responsible, and already popular with young people.