Buy now, pay later (BNPL) has emerged as the latest battleground between incumbent banks and challenger brands. However, from an incumbent’s point of view, the battle is less about competition for the BNPL segment itself as it represents a relatively tiny market compared to the overall consumer finance revenue pool, both today and in the foreseeable future. For incumbents, competing in this market presents an opportunity to identify, justify and scale up their best strategies to quickly and successfully transform themselves into future-proof businesses.
The BNPL market is a novel market segment built around new customer and merchant value propositions with an innovative business and revenue model. It provides incumbent banks a relatively low-risk, ringfenced test market to experiment with new technologies, fintech partnerships, platform services, and to demonstrate to customers their overall value chain strategy and customer lifecycle approach.
The Australian major banks have approached the BNPL challenge in significantly different ways.
These range from total ignorance of the segment’s importance, to mimicking the leading BNPL proposition in the market with a technology-centric approach of building and leveraging state-of-the-art, front-to-back technology stack. Some apply a more traditional internal product development response with launching an innovative card product to compete with BNPL offerings, while another approaches involve the bank partnering with a leading BNPL provider to offer a white-label product manufacturing and tech platform capability with some distribution and commercial agreements in the background.
Which one is the right approach? Well, it may be too early to draw that conclusion. But, Australian banks’ widely different responses to the BNPL phenomenon illustrates that we are reaching a point of divergence in the local banking market’s evolution.
At today’s heightened pace of change and need for transformation, the ability to identify the right strategic responses, take bold and unorthodox actions, and execute changes rigorously and at scale will be what makes current players the future leaders.