BNPL’s ‘Venmo moment’ is approaching – LendIt FinTech News


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MobilitySenior Digital Banking Advisor Ruby Walia believes the FinTech industry is in the middle of its Venmo moment when it comes to buy now, pay later (BNPL), but another more complex one. .

This development will continue to be a story to watch as BNPL’s capacity grows in 2022.

Before Venmo, Walia used to say that people couldn’t send money to each other digitally. The concept was also not on the radar of banks until then.

MobilitySenior Digital Bank Advisor Ruby Walia.

Then came Venmo and an alarm clock in place. Banks knew they spent money processing checks, but they also understood the importance of every customer touchpoint.

They are worried about disintermediation and the entry of a giant like Apple or Amazon in the sector. Their collective response has been Zelle, which is integrated with many mobile banking applications.

Walia said, fast forwarding to the 2020s, where Affirm, Klarna, Afterpay and others have created a capacity that is resonating clearly in the marketplace. It’s better than checks, which has immediate consequences as BNPL has evolved into term loans and unsecured personal loans.

“So this Venmo moment is not saving the banks money. It costs the banks money, which means it increases the urgency with which they have to react,” explained Walia. banks are trying to figure out how they play in space, how they compete with each other, and I think they’re a player in that ecosystem that will be doing something in that space over the next 24 months.

Co-branded options possible

Merchants also have an interest, with larger ones having co-branded cards that allow them to reduce their credit card purchases, Walia noted. They lose this when they activate the Klarnas. The most prominent merchants may have some influence and negotiate with BNPL brands, but most have to agree to the terms of the fintechs, even if they cannibalize business from their own branded cards.

The possibility of BNPL co-branded options with credit card issuing banks was raised. Walia expects merchants and banks to work on solutions, whether joint or stand-alone offerings, over the next two years. Network processors are also paying attention and working to allow banks in their networks to run BNPL.

“A payment gateway, for example, enables the experience on a terminal,” Walia said. “And so, in this experience, why couldn’t they activate a BNPL capability and manifest it inside the post?” So it’s another riding that looks at BNPL and is like, “Well, why don’t we do something like this? ”

“And then the wild card, of course, is Apple. So Apple is pretty widely reported as doing something with Coleman and Marcus.

Apple is one of the few companies that can step in and change the industry, Walia said. There were no negotiations when he introduced ApplePay – accept their terms or look outside. This gives them the power to fill a void that Walia sees in the US market. Although it does not undermine the desire of traders and banks to enter the space, such an approach will indeed find an echo.

The cycle will change

BNPL has become an essential part of the cycle. What happens when the cycle changes? Walia said the additional payment revenue protects BNPL players from higher macro-level defaults. Consider who signs up for BNPL, he said. Many are less wealthy and often have a slimmer credit history. They see the ability to make payments over time as an opportunity to purchase items that they might not otherwise be able to, as many do not have a card. It’s inclusion.

From a credit standpoint, it’s less risky than a credit card, which is essentially an endless line of credit, Walia said. That’s why the installment payment that locks up some of a user’s credit card space won’t have the same penetration – much of the market in the United States doesn’t have credit cards.

Walia said he has a contrarian view of open banking and its effects as the movement heads towards the western European Union. He thinks it’s basically been around in the United States for five to seven years. While some of the features related to PSD2 and the use of payment rails that exist in the European Union are not present here, companies like Plaid have created equivalent capacities, he explains.

“They actually created equivalent capacities and maybe even more capacities,” Walia suggested.

So if I am in the process of opening a Venmo account, while filling out the screens on my phone, I need to provide my bank credentials so that they can access my bank account. Because Venmo doesn’t actually keep your money, they act as a middleman. So Venmo doesn’t actually store my bank credentials.

Market-oriented approach

“In the US, it’s sort of a market-driven approach, rather than a European government-led approach, where companies like Plaid will allow third parties to create services that require access to our bank account. . “

Looking ahead to 2022, Walia sees a lot of activity within BNPL, starting with brands partnering with banks to introduce their BNPL capability, as sporting goods dealer Scheels did with FNBO. . Walia said he has advised companies considering similar measures.

Also look for companies to pursue more integrated financial experiences, Walia said. They want to emulate that seamless Uber experience.

He suggests that the real-time payment capability will also increase, which may work in combination with integrated finance due to the powerful communication capabilities that link the debts and receivables of different companies.

Walia said there is still plenty of room for innovation to make day-to-day financial interactions seamless. For example, look for more intuitive experiences where ordering and paying for everyday items like your morning coffee is right for you.

“I see a lot more of this automation and less of the clutter of having to engage and manage all of these tasks personally,” Walia said.

“For people for whom this stuff is part of everyday life, why can’t we automate this? “

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