Friday, February 17, 2023
Nandan Sheth, CEO at Splitit, has seen BNPL providers expand digital banking services and expects this trend to continue in 2023 among leading players in the space.
"If a credit card portfolio has more than 60 points of write-offs, you'd call that a subprime portfolio," he said. "BNPL is accelerated subprime, with no path to profitability, so these BNPL companies are going to offer banking services to the millions of consumers they've registered."
New BNPL add-on services may include bill pay, financial solutions and other neobank product offerings, Sheth stated, pointing out that Klarna received a banking license in Germany and is already offering credit and debit card products, with plans to offer checking accounts in the next 12 months.
Sheth additionally noted that numerous BNPL firms are disintermediating merchant relationships with their own customers, a trend he compared to delivery service providers that service restaurant clientele. In both cases, he observed, the merchant doesn't own the customer relationship, order histories and personal preferences.
In addition, Sheth cited multiple friction points in ecommerce BNPL transactions, which typically redirect customers away from a merchant's site to a third-party service provider landing page to review installment options and enroll in a seven-step registration process. Embedded finance, by contrast, provides a simpler user experience, and the consumer never leaves the merchant's site, he said.
"All they have to do is enter a card or select a card on file, select their installment option and get approved," he said. "And because we're not originating a new loan, Splitit ecommerce transactions get approval rates of 80 to 95 percent, and our average tickets are $1,500, compared to the industry average of $300."
Sheth also mentioned that until recently, most BNPL procedures involved too many steps, which is why consumers are not seeing more BNPL options in physical stores. However, Splitit and Ingenico recently launched an in-store solution designed to eliminate barriers to BNPL adoption by embedding a one-touch, no-interest BNPL service into POS terminals. This omnichannel solution helps merchants grow and scale while driving loyalty and repeat purchases, according to representatives of both companies.
Noting that underserviced in-store BNPL opportunity is three times greater than ecommerce, Sheth said, "This partnership will transform BNPL at the point of sale, opening incredible new opportunities outside traditional retail. All industries – healthcare, home furnishings, home improvement and repairs, automotive and business services, to name a few – will benefit."
Michael Balzer, head of sales and strategic partnerships at Payment Platform as a Service (PPaaS) for Ingenico, agreed that Installments as a Service and PPaaS are complementary services. "PPaaS is all about facilitating how people pay and what services they can access at the point of sale," he said. "Splitit is reinventing installment payments at the point of sale in a way that makes it easy for merchants to propose this option to its customers, and PPaaS can help them do this in a simple and effective way."
Commenting on the current economic climate, Sheth predicted small BNPL providers will evaporate or get purchased by larger Fortune 500 companies. There's going to be huge consolidation in the space, and we'll also see a lot of innovation backed by VC capital, he stated.
Divido's October 2022 white paper, titled Can Buy Now, Pay Later help during the Cost of Living Crisis, made a case for creating inclusive BNPL policies that support all consumers.
"Vulnerable consumers must be considered in the process of implementing BNPL to protect them from risky purchases, defaulting on loans and ultimately experiencing financial hardship," researchers wrote. "Retailers play a key role in this process and must understand their responsibilities, lest they risk damaging their brand reputations."
Sheth agreed, stating a program in development at Splitit will soon enable ISOs and merchant level salespeople to offer customized, private-label BNPL services. "ISOs and agents can resell our technology and monetize the sales process," he said. "And their merchants can control their BNPL offerings and own their customer relationships." 
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