The Buy-Now-Pay-Later Boom Explained

With the buy-now-pay-later market blossoming from Europe to Australia in the wake of the COVID crisis as shoppers worldwide rely on online deliveries, we sat down with three cherished members of Solarisbank’s lending unit, Project Management Lead Hedy Born, Product Manager Randa El-baz and Managing Director Krishna Chandran to find out where this boom is coming from and how Splitpay, Solarisbank’s latest product innovation, is making a mark on this turf.

Buy-now-pay-later models are crowding onto the market at an ever-increasing rate. How do you explain that?

Hedy: Let’s take a step back and think about what a loan really is. I like to think of it as a means to an end, rather than an end in itself. When we take out aloan to purchase a car for instance, it’s not the loan itself we want. The loan is merely a means to get to our actual goal faster: a shiny new car. Therefore, the shorter and more convenient you can make the lending process, the faster your customer can reach their goal.

Buy-now-pay-later models are very effective at this, as they can be integrated into the digital context of the user journey. When I want to order a new couch online for example, I don’t want to have to go to a bank, get a loan approval, wait for it to be transferred and then make my purchase. With a buy-now-pay-later offering, I can simply select to pay in installments at the online checkout without having to interrupt my user journey.

The retailer on the other hand can expect better conversion rates and higher ticket sizes when they implement a buy-now-pay-later payment option.

Do you expect this trend to continue in the future?

Randa: Definitely. Just think about your own purchasing behavior for a moment. Be it listening to music on Spotify, hailing a ride on Uber or ordering dinner on Deliveroo - we are becoming conditioned by the digital services we use every day to expect a convenient, flexible and immediate experience. These expectations have also manifested themselves in the payments realm. As our e-commerce consumption continues to rise, so will our appetite for customer-centric payment options.

With fixed installments, buy-now-pay-later models also offer a welcome alternative to revolving credit cards, which, to many customers, pose a higher risk of slipping into debt. This means that through buy-now-pay-later models, also the more risk averse customers are now part of the target audience. We believe that this type of contextual finance holds huge potential. That is why we have developed Splitpay, our own white-label installment solution.

Can you explain how Splitpay works? How is it different from other buy-now-pay-later offerings?

Krishna: With Splitpay, other businesses can enable their customers to split up their purchases into simple installments with a tap of a finger. As a technology company with a full banking license, Solarisbank provides both the loan, as well as the technical infrastructure for a fully automated process.

Can you give an example?

Krishna: An e-commerce shop selling fashion for example, could integrate Splitpay into their checkout flow and thus enable their customers to split a 300€ purchase into six smaller installments of 50€ plus an interest fee. What is important to note, is that Splitpay is a white-label service. That means, that the e-commerce shop can offer the Splitpay installment loan entirely in its own branding, with the Splitpay solution performing the automated scoring and payment processing in the background.

What is the concrete benefit for the e-commerce shop in this case?

Randa: with a white-label solution like Splitpay, the e-commerce shop can retain full ownership over the customer relationship, unlike with other buy-now-pay-later models, where the user is directed away from the shop’s page to the payment providers interface.

With the standard buy-now-pay-later models, the retailer even runs a risk that the payment provider will take the customer relationship away entirely, for example by directing the customer towards other retailers where the payment provider can achieve higher commissions.

__Is Splitpay targeted specifically towards online retailers? __

Randa: No, not exclusively. What makes Splitpay so unique is its versatility. Online retail is just one of the many use cases. With Splitpay, users can not only choose to pay in installments at the point of sale, as common with other buy-now-pay-later models, but they can also use the Splitpay credit line to convert a past paymentinto installments retrospectively. This makes Splitpay very powerful when integrated directly with a mobile banking app.

Imagine you just went on vacation and upon your return, your washing machine breaks down. To free up liquidity on your account for a new washing machine, you can retrospectively convert the past purchases made on the holiday, such as flight tickets and hotel bills, directly in your mobile banking application. Splitpay opens up a whole new world of financial flexibility.

The first partner that went live with the new Splitpay product was none other than global payment giant American Express. What was their approach to the product?

Hedy: When Amex looked into offering an installment product to their cardholders, they had three crucial requirements. Firstly, Amex targets a very demanding niche of customers that expect a top-quality service. Therefore, Amex wanted to have full control over front-end and branding of the product, without any interruptions in the customer flow. Secondly, as one of the most esteemed players in the financial world, they were looking for a reputable partner that they could trust; and thirdly, they needed a partner that could deliver a fully digital solution within a short timeframe.

So,what drove Amex to partner with Solarisbank?

Hedy: The incumbent banks Amex could choose from for the project may well carry a certain prestige, but you’d be hard pressed to find one among them that can deliver a fully digital contextual lending solution at speed. Getting an own banking license could have been an option for Amex, but the immense time investment required to obtain a license, not to speak of the regulatory obligations that come with it, would have made the project unviable.

When we started talking to Amex, it was a perfect match, as we were the only ones in the market able to meet all of their requirements at once. The collaboration went incredibly smooth so after a mere5 months we hada finished productready to be launched. Now, American Express cardholders, once they’ve gone through the video identification and received approval for their Splitpay credit line, can split payments made with their American Express card into flexible installments. Within their credit line, they can split as many purchases as they like, all with the tap of a finger.

What’s up next?

Krishna: We were incredibly proud to win global powerhouse American Express as our first partner for Splitpay and it is satisfying to see how the product went live in such a short time. With Samsung Pay, we onboarded another global player to our Splitpay solution. Now we’re looking forward to onboarding further partners that we have in the pipeline, including both large corporates andalso fast-growing fintechs. We are also exploring opportunities to extend the product beyond consumer finance and into the market for freelancers and SMEs. There are exciting times ahead for sure!