BNPL (Buy Now Pay Later) has grown into one of the hottest trends in the open banking, digital lending, and retail industry; and is estimated to be worth US$3.98 Trillion by 2030. Big brands like Afterpay, Affirm, and Klarna are ruling the market, capitalizing on offering customers the satisfaction of instant purchases while deferring the pain of paying now.

With such a lucrative market and massive potential for continued growth, it’s high time banks join the BNPL herd to avoid getting sidelined by the sector. Also known as pay later services or pay later BNPL, buy now pay later is quickly overshadowing the traditional method of purchasing mid to high value goods using bank credit, personal loans, or a debit card. 

BNPL is, in essence, a form of instant lending which is, for the most part, applied for and approved online using digital channels and AI-credit scoring. Buy now pay later has been a dominant payment one of the world’s fastest-growing payment methods, with low-interest rates and in some cases being fully interest-free.

BNPL can also be availed through more traditional POS (point of sale) channels, allowing customers to use BNPL when making purchases in person or online. While a range of fintechs dominates the online BNPL world, banks have a solid opportunity to capitalize on the potential of BNPL through more traditional POS systems. 

5 Types of POS financing Systems 

Banks can leverage five POS financing systems when offering their own BNPL services and solutions. 

Integrated Shopping Apps 

Integrated shopping apps saw an increase in BNPL usage by 300%. Leading BNPL companies like Afterpay and Klarna have adopted the integrated shopping model as their go-to for offering buy now, pay later. These fintechs engaged customers for the entire purchase journey, from prepurchase to post-purchase. 

Prevalent in Asia-Pacific, integrated BNPL shopping apps have seen high conversion rates, especially with millennial and Gen-Z shoppers. The general ease of use and soft credit checks have made integrated shopping apps the primary model of BNPL across the world. 

Card-linked installment offerings 

Increasing at a CAGR of 200%, card-linked payments are prevalent in Asia and America. Card-linked installments are generally a no-cost EMI option, used for high ticket purchases (above $1,000) using credit cards through merchant offers. This payment model sees a lower level of APR BNPL payments for cart purchases. This BNPL model is often used by fintechs as a prepayment option and the post-purchase option for increased EMI conversions. 

While adoption rates of this model, particularly in the US have remained low, they have the potential to gain steam since card-linked installment offerings can enable merchant-subsidized offers. 

Off Card Financing Solutions 

The off-card financing model works the best for mid-sized payments such as those pertaining to electronics, home appliances, sport and fitness machines, etc. This system of payment requires a higher credit score from the side of the customers to avail it and is currently offered by companies such as Affirm and Uplift. 

Most of the customers availing of this model, already have a good credit score but they choose BNPL as a cheaper alternative to alternate financing. Of the consumers who use this type of BNPL, about 80 percent already have a credit card yet choose BNPL due to it being a more cost-effective financing option. 

Virtual Rent-To-Own (VRTO) model 

The VRTO model is a payment model where customers can pay in equal installments for the products they wish to buy and once all the payments are completed, the purchase is declared successful. The VRTO model is growing at a rate of 35% CAGR, however, most customers opting for this model have a credit score lower than 700. This model of BNPL is typically used for goods that can be can, theoretically repossessed should the customer fail to complete their payments. 

Companies like AcceptanceNow, Acima, Progressive Leasing are the main players in the BNPL VRTO space. 

Vertical focused larger ticket plays  

This model is used for financing higher-value purchases or deals generally starting from US$2,000 to US$40000, similar to the way sales financing has worked in the past. The Vertical focused larger ticket model is growing at a fast pace of 15% in the elective and non-elective industries. It’s also widely accepted in the healthcare, and home improvement industries.

These high ticket purchases are often seen in purchases of air conditioning, room ventilation, dermatologist and dental offices, and cardiologists centers. Banks can target this space to attract high-credit customers and to cross-sell mortgage refinancing and similar banking services.