At RFi Group we have been tacking consumer and merchant usage and attitudes towards BNPL since 2017 and over that time the view from the market has shifted from seeing BNPL an interesting, even niche, product to a recognition that BNPL is here to stay. Last week’s news of Square’s acquisition of Afterpay only solidifies that.
The success of BNPL over the last few years, and the recent acquisition of Afterpay by Square gives us an indication as to how the banking and financial services landscape is changing for consumers.
1. (Fin)Tech is changing the way consumers pay
RFi Group data highlights the explosion of fintech adoption we have seen globally over the last few years. The speed of change has varied between markets, with some Asian markets approaching near universal usage of fintech, while uptake in Western markets has been markedly slower. Looking at RFi’s data on this, it strikes me that the most successful fintechs are almost always payments providers. Alipay and WeChat Pay in China and Hong Kong, PayTm in India, Wise in the UK, Venmo and Square in the US and Afterpay and Zip in Australia.
There are likely a couple of key drivers behind this; payments are less regulated than other areas of banking and easier for fintech to enter into, consumers are also more comfortable using a new provider to transact with rather than bank with. The stakes are lower, so new non-bank providers can win share more easily.
There are also pain-points that create friction in the payment experience. The rapid rise in mobile payment adoption in Asia and BNPL in Australia are just two examples of fintechs solving these pain-points. In Asia, mobile payment adoption was driven by the fact that providers like Alipay allowed customers to circumvent limited card acceptance and move away from cash. In Australia, and increasingly in other markets around the world, BNPL is providing customers with a solution that not only allows them to checkout easily (there’s a reason BNPL has been more successful online than in-store) but also gives customers control over their money; a key driver of BNPL uptake has been helping customers to ‘budget’.
A consumer is willing to use a new provider if the provider can clearly demonstrate what the added benefit will be to the customer over an existing solution.
2. We can expect that the range and type of providers consumers use for ‘banking’ will continue to evolve
RFi Group research suggests that customers are becoming less loyal. Customers are open to using a range of providers for different products and services and are increasingly open to the idea that some of these providers might not be banks. Customers no longer expect a one-stop shop and are willing to use a range of providers to access the best products and services. Both Square and Afterpay have benefited from this trend already.
The other trend we are increasingly seeing is that of partnerships, or in this case an acquisition, that expand the product set available to customers rather than building new products from scratch. Square’s acquisition of Afterpay will provide customers of both access to a wider range of products and services that will also complement each other; for example the ability for Square to add further value to merchants via Afterpay integration. There is also some synergy in the consumer products both offer, the Square Cash App provides customers an easier way to send money while Afterpay provides an easier way to make a payment. I also wonder whether the process of using Afterpay to pay in-store could be made easier as a result of integration into Square terminals.
We can expect that neither Square nor Afterpay are done innovating and both Afterpay and Square appear to have ambitions to provide a wider range of consumer products. As choice expands for consumers, we will see customers using a wider range of different providers to do their ‘banking’ and could even see completely new product types being launched. What new products and partnerships will come out of the next 12 months? Only time will tell