Future of Point-Of-Sales Lending: Fintechs Pounce while Banks Sit Out

The pandemic has accelerated many financial trends, particularly for point-of-sale (POS) lending, also known as buy now/pay later (BNPL), which has become a prominent and popular alternative to credit cards. The market for this product is dominated by fintechs, despite a desire among consumers to access credit from their primary financial institution.

Key findings include

• BNPL solutions are popular for the financial flexibility they offer at time of purchase. They can fill the short-term credit gap for the less affluent and young, satiate the need to borrow without revolving credit card debt and help consumers match payments with their existing cash flow.
• Merchants find the services attractive as they allow customers to make purchases that they normally would not have been able to.
• The market is dominated by four companies, each with different business models - and PayPal alone controls almost half of it. That said, half of the customers surveyed had never used a BNPL product before.
• The products are largely short-term in nature (less than six months) and are split between a deferred debit product (56%) and an installment loan (44%). Two thirds of all purchases were for less than $400, reflecting the need for low-dollar borrowing.
• Many (62%) of the installment loans offered come with promotional interest rates and an ability to borrow beyond the introductory period. One in five (19%) borrowers do not pay off the loan during the promotional period, making them subject to high-interest “go to” rates and other penalties.
• Gen Z consumers favor loans to fill a credit gap, while millennials and Gen X customers favor deferred debit programs, reflecting more of a need to align purchases with cash flow.
• Customers with the most recent purchase experience are the market’s strongest proponents for repeat usage and would recommend their provider to others.
• There was strong interest across all generations in a bank-offered BNPL service. Gen X consumers had the highest level of interest at 86%, followed by 78% of Boomers and 76% of millennials.

The market for BNPL products is continuing to expand through a combination of more consumers shopping online, where these products are most prevalent, and as BNPL providers move into the offline, in-store channel. While fintechs appear to dominate this market, three of the four leaders are publicly traded, with the fourth planning to go public as of this writing.