Banks confront disintermediation in payments

The emergence of Buy Now Pay Later (BNPL) services could lead to further disintermediation in the payments space particularly with younger demographics.

Research from RFi Group has found that consumer awareness and take up of services such as Afterpay and zipMoney has been steadily increasing, with the potential to grow further in 2018.

According to the data, one in three Australians surveyed in March 2017 indicated that they are aware of at least one BNPL service.

By November 2017, this figure jumped to one in two, with Afterpay very much leading the way in terms of awareness (see table below) of any specific BNPL service, with 45 per cent of Australians indicating that they have seen an Afterpay logo while shopping online or in-store.

Usage of BNPL services also increased significantly over this period, up from 14 per cent in March 2017 to 17 per cent in November 2017.

These results mean that one in three consumers are aware of a BNPL service or have also used one.

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Source: RFi Group


RFi Group head of client insights Kate Wilson said that the increasing awareness of these brands has the potential to disintermediate the payments experience between the banks and customer in the payments experience.

“We have seen that similarly with ApplePay. Consumers believe payments are facilitated by ApplePay rather than the bank. Banks could potentially lose the relationship with their customers through BNPL services,” Wilson said.

Keeping pace

"In particular, millennials tend to be “less loyal” with their bank and are open to trying new services such as BNPL.”

However, she believes that the growing popularity of this payment type could spur innovation from the banks.

Wilson said some of the big banks already offer a form of BNPL by providing an instalment option to their credit card offering.

However, another interesting finding from the report was that consumers did not see BNPL as a line-of-credit, and instead perceive these services as an alternative payment method.

According to Wilson, these perceptions could mean that consumers may not find the idea of payment instalments through a credit card as appealing as they would view it as a form of credit card payment.  

Nevertheless, she added that while existing BNPL services have first mover advantage, banks could look at developing their own services or in the case of Westpac make a strategic investment.

In August 2017, Westpac made a $40 million equity investment in zipMoney.

“We’re looking to offer Westpac customers more choice in the changing payments landscape, “Westpac co-head of business development Macgregor Duncan said in a statement.

“We want to co-create new products and services. And of course, it’s a way for Westpac to reach the next generation of customers and keep pace with new technology and changing consumer behaviour.”

ASIC scrutiny

Going forward, BNPL services do confront a number of challenges.

“As with all new technologies, the user experience will be key to repeat usage. If consumers are not able to easily complete a payment using a BNPL service, they will revert back to traditional payment methods,” Wilson said.

Similarly, as consumers see more people using these services and hear of others having a positive user experience they will be more likely to trial BNPL services themselves.

“Of course, the inverse is also true, if consumers have or hear of bad user experiences, particularly if these are picked up by the media, trial and repeat usage of BNPL services could be affected,” she said.

The rise of BNPL services has caught the attention of ASIC. According to reports, the corporate regulator plans to conduct a review this year into these services.

“All of this raises the question of where BNPL services will go over the course of the next 12-18 months.

“Are these services here to stay or will we see consumers turning back to credit cards and other traditional payment methods,” Wilson added.

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