As g2o detailed in our November Blog post Buy Now, Pay Later has continued to gain in popularity and made significant gains in consumers share of wallet throughout the 2021 holiday shopping season. PayPal alone saw sales volume increase by a whopping 400% on Black Friday according to their CEO Dan Schulman and new app downloads for BNPL vendors during December topped 3.47 million, with Klarna’s 37% YoY increase in downloads leading the pack. And 50% of those consumers who were testing out BNPL on purchases are now reporting using it multiple times throughout the year.
With this in mind, a majority of larger financial institutions have started marketing new or repositioning existing products to capture lost revenue from BNPL. And it’s not just the big players that are reacting to the power of BNPL. Innovative Regional Banks are also announcing new, flexible lending products and strategies to respond to the increasing momentum.
Why is so much smart money chasing transactional consumer loans?
g2o's market analysis indicates these financial institutions have recognized the opportunity to earn valuable fee income, new interest income, and increase their share of wallet across important customer segments, including 32% of those making more than $100K. Coupled with the frequency and habitual use of BNPL products, we estimate even smaller innovative financial institutions are capitalizing on this emerging trend to the tune of $1.5M to $2m in direct annual revenue.
It’s our view that financial institutions have an immediate opportunity to benefit from the momentum of the BNPL trend to improve retention, drive consumer acquisition, and grow new sources of interest and fee income – if they understand their customer’s motivations. The journey starts with a comprehensive evaluation and analysis of your existing consumer base, including who is most likely to use BNPL and how often, as well as how BNPL factors into total revenue contribution from consumer relationships.
Three Pieces of Information Needed for Long-Term BNPL Strategy
Our work with financial institutions of all sizes, has led to the identification of three critical pieces of information that every financial institution, no matter how large or small, will need to help fuel the development of a long-term strategy around BNPL.
- Conduct an Impact Assessment – Examine the impact that BNPL is having on your wallet share with your customers. A study by LendingTree indicates 1/3 of your existing customer base is already using Buy Now Pay Later products. And they are doing so habitually. It is critical you understand how BNPL is affecting your current portfolios relative to total transactions impacted, costs to your organization, and quarter to quarter shifts.
- Analyze Customer Data – Use the information you have already available related to your consumers’ purchasing experiences and journeys to understand BNPL from their point of view. What role does BNPL play in impacting your customers’ decision to ring the register? And how does BNPL impact the utilization of your personal lending products?
- Segment Targeting – Leverage consumer research insights to develop segment-based marketing strategies, ensure that you’re hitting the right target audience, and to develop messaging that clearly positions your personal lending products in the most relevant manner to win new business from your consumers. These efforts will help make certain that you’re earning new interest and fee income while increasing your mindshare and building your relationship with your consumers.
Together we can help you build the right BNPL strategy for your institution and propel your organization’s growth while also driving increasing consumer engagement and fueling long-term loyalty. There is still time to have a meaningful impact for your organization in 2022. Reach out and schedule a call to learn more.
Visit the other two articles in this series, Buy Now, Pay Later: Challenging Traditional Payment Methods and Buy Now, Pay Later is Only the Beginning - The Next Wave of Financial Disruption is Clear for more information on the impact of Buy Now, Pay Later on traditional Financial institutions.