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Buy now pay later (BNPL) is not a new concept, yet BNPL - as we know it today - has exploded globally over the last few years. In Southeast Asia, the alternative payment method is gaining ground, driven largely by the region’s high internet penetration as well as its substantial younger mobile-first generation. Here, the market is dominated by merchant-focussed offerings from specialised fintechs, such as Atome, and established players, such as super app Grab (who recently added a pay later offering to its wallet). However, as a market expected to be worth US$92 million in Southeast Asia by 2025, according to Google, Temasek and Bain, it is not surprising that banks across the region are considering adding BNPL solutions to their arsenal - the question is, how?
The majority of players have gone down the route of partnering with retailers to offer their BNPL services – which has become popular among the large population of unbanked or underbanked consumers in the region, who lack access to credit facilities. However, this business model has its limitations, particularly in terms of acceptance, and as we’ve seen in other parts of the world, this is not the only way to offer BNPL services.
Some forward-thinking banks are now starting to get involved, and are providing their account and cardholders with instalments services. This model is the natural progression for the BNPL market in Southeast Asia. By utilising their unique position as trusted custodians of their customer’s money, alongside their in-depth knowledge about their customers and habits, banks can put together a compelling and creative proposition that not only adds value but can compete with the more established players in the market today.
The key here is knowing their customers. By leveraging this information, banks can build out their propositions and launch services that are not only convenient, transparent and inclusive for customers, but provide lower risk to the bank.
BNPL models for banks
Unlike the merchant-focussed offerings available in the region, which only allow customers to pay for goods or services using buy now pay later at the merchant e-checkout, banks can offer post-purchase BNPL services. This model enables customers to complete transactions with their preferred payment method, whether card or account, and opt to convert eligible transactions into instalments after purchases have been made. This model is the fastest route to banks offering BNPL services as it can be offered through a number of the bank’s channels, such as mobile banking app, ATM, call centre, etc., without the additional complexity of integrating with merchants, their online shops or POS terminals. As a region with low credit card penetration, providing post-purchase BNPL banks in Southeast Asia can offer customers a more accessible form of credit that can better enable them to manage their money.
It is not just the post-purchase model that banks are suited to - another model for banks in the region to consider is card-linked BNPL. This model enables customers to pay for purchases in-store, online and in-app using a BNPL payment card. As the BNPL card can be issued both virtually or physically, can be single use or multiple-use, and can be used at any merchant – on- or offline, it is ideal for customers in the region as it brings BNPL to the physical environment. This is particularly important in a region where shopping is viewed as a social activity.
However, banks in the region do not have to opt for just one model – they can go-to-market with a BNPL solution and evolve it over time. For example, they can start by offering post-purchase BNPL through mobile banking and extend it to other channels, before adding a virtual or physical card to their proposition, they can add different instalment plans with their own interest rates, fees, charges, etc. There are so many ways banks can differentiate from other players in the market and establish a presence, what is important is that they don’t wait until it’s too late and the market is saturated.
The next step
BNPL is the perfect value-add for banks in Southeast Asia. With the market growing in an upward trajectory, and its popularity amongst the younger generation, banks can utilise it to unlock new revenue streams, enhance customer loyalty, reach a younger demographic, attract new customers and gain better customer insights.
By leveraging the trust and knowledge of their customers, banks will be able to offer attractive propositions that, while not relying on merchant acceptance through partnerships, actually opens up and accelerates BNPL acceptance at retailers across the region, providing a much better experience for their customers. While the Southeast Asian BNPL market is currently dominated by merchant-focussed offering, it is clear that there is a sizeable untapped market - a market that banks are best placed to fill.
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