• Neha Mittal, Chief Operating and Financial Officer at Divido


• 02.08.2021 11:00 am
#payment #creditcard

For a host of banks, the Buy Now Pay Later (BNPL) revolution has felt like something of an uphill battle, as agile fintechs reacted fastest to shifting consumer behavior, bringing new solutions to market at a pace that the incumbents could not keep up with.

But was this early fintech success built on strong foundations?

The arrival of the Woolard Review from the Financial Conduct Authority (FCA) is set to change the game. A key directive is ‘the regulation of the unregulated buy-now-pay-later' market, with former FCA interim CEO Christopher Woolard CBE highlighting how new ways of borrowing, accelerated by the Covid-19 pandemic, have changed the market with ‘billions of pounds now in unregulated transactions and millions of consumers at greater risk of financial difficulty’.  

The Woolard Review has truly changed the direction of travel for retail finance. These same banks, who were at risk of being left behind, now have the chance to steal a march on those disruptors who will be forced to re-establish their own business models in line with the fallout from the Woolard Review.

Traditional lenders, who for the most part are already well-versed in regulatory compliance, suddenly find themselves far better placed to capitalize on the retail finance opportunity. And what an opportunity it is, with the market expected to hit $2.5 trillion next year.

With brand values and trust ever more important in the wake of the Covid-19 pandemic, the spotlight of trust immediately settles on those traditional lenders. Unfazed by the prospect of new regulations, it is time for banks to use their brand heritage to support their proposition. 

This doesn’t just mean consumer trust but also trusted partnerships with merchants at the coalface of the retail finance journey. The open and transparent legacy of competence and trustworthiness, driven by established banks, is what sets them apart. Disruptors simply cannot buy this heritage, meaning that traditional lenders will always be seen as the most secure credit partner.

The BNPL revolution highlights a generational leap in spending habits, with millennials and iGen making purchases based on very different rules. This is often characterised by their need for transparency and greater value from credit. As a result, they are gravitating to options that give them greater control and often interest-free payment. The combined payment power of these demographics combined look set to exceed that of their older counterparts in the next year. 

Faced with declining credit card spend, banks can no longer afford to be passive in the retail finance market. The playing field has just been levelled, so there is no better time for banks to seize the moment.