Download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration. 

With consumer demand on the rise for digital-centric financial services, established banks risk losing ground to fintechs and other digital-native competitors. For these financial institutions, offering increasingly popular buy now, pay later (BNPL) services could be a prime path to maintaining market share. What’s more, established FIs can leverage some powerful inherent advantages to stay ahead of the BNPL competition. 

But with the BNPL landscape growing ever more crowded, banks can’t afford to wait on offering BNPL services; they must act now to evolve their offerings to capitalize on this potentially transformative market opportunity. 

Consumer demand is driving the BNPL services boom 

Buy now, pay later in recent years has become an ever-more popular payment option for consumers. In a 2023 survey by J.D. Power, 28 percent of U.S. shoppers polled reported having purchased with a BNPL service in the preceding 90 days, with BNPL use ranging across a wide swath of income levels, from financially vulnerable to more affluent consumers.

BNPL use surged during the most recent holiday season, with consumers spending almost $17 billion on online transactions via BNPL services over November and December 2023–a 14 percent increase over the final two months of 2022, according to a report by Adobe Analytics. BNPL spending on Cyber Monday 2023 alone tallied $940 million, up a whopping 43 percent year-over-year, the study revealed.

As the stats make clear, the utility offered by BNPL services to defray the full cost of a purchase over several weeks or months with little or no fees is a highly attractive value proposition that’s catching on fast with consumers. 

Buy Now Pay Later - The Way it Should Be for Consumers

Banks have the edge on consumer trust

While a handful of pioneering BNPL specialists have leveraged early-mover advantage to carve out a significant share of the market over the past few years, banks remain well-positioned to catch up fast. Traditional FIs enjoy several advantages that have the potential to give them the edge in providing BNPL services over the long run. 

Consumer trust is one such area in which established banks outpace their upstart fintech competitors. In a recent study from Citi, 90 percent of U.S. adults polled expressed confidence in banks’ ability to detect and prevent financial scams. Further, 55 percent of respondents ranked banks as among their top three most trusted institutions for scam prevention. 

Notably, confidence in banks holds even among younger consumers; in a recent poll of Generation Z, 43 percent of respondents said brick-and-mortar banks provided peace of mind that digital-native fintechs could not. Banks that can maintain and build upon that basis of trust will be well-positioned as younger consumers become a more significant segment of the overall consumer population in the coming years. 

Where Does Buy Now, Pay Later Fit in the Future of Banking?

Leveraging infrastructure and data for better BNPL services

Along with enjoying high levels of consumer trust, established FIs already have in place robust systems for handling payments, credit assessments and risk management–all factors that make them well-equipped to integrate BNPL services into their existing operations. 

Banks also hold vast amounts of customer data, including transaction histories, credit scores and spending patterns, which can be leveraged to tailor BNPL offerings to individual consumers, customizing terms and conditions based on their financial profiles and identifying suspicious spending patterns that could be indicative of fraud. 

Leveraging these strengths and capabilities can enable banks not only to meet the growing demand for flexible payment solutions but also to ensure the responsible and sustainable use of BNPL services by consumers. 

But banks that want to get in on the BNPL boom don’t have to go it alone in building their own BNPL offering from the ground up. Instead, they can tap third-party partners that can help get them up and running in a fraction of the time it would take to develop and implement a BNPL solution on their own.

And with the BNPL landscape still in its formative stages, the sooner a bank can establish a market presence, the better positioned that FI will be to leverage BNPL as a powerful way of retaining existing customers–and winning new ones. 

Why Galileo’s Buy Now, Pay Later Model Is Different–and Better

Want to Learn More?

For more insights on how banks can win big by offering buy now pay later services, download the latest Embedded Finance Tracker®, a Galileo and PYMNTS collaboration.