The Buy Now, Pay Later Model of the Fintech Industry in the Commercial Banking Sector: An Opportunity or a Risk for Banks?

Abstract

Buy Now, Pay Later (BNPL) is one of the biggest fintech trends of recent years. Klarna, as one of the largest BNPL providers, had reached a record corporate valuation of US$46 billion in 2022. However, due to the changed economic environment, this has plummeted by 85% in the following months. Nevertheless, there are only a few commercial banks until now that are serving the BNPL business model. Despite the hype around BNPL and its potential for success, commercial banks continue to rely on their similar product, the credit card business. Therefore, this study aims to examine the direct impact of BNPL as a competitive model on commercial banks' business model. Using economic theories, background literature, expert interviews, and reports, an attempt was made to capture the complexity of the business model through three sub-research questions and four corresponding hypotheses. The resulting self-constructed conceptual model includes relevant internal and external factors. Based on this model, the influence of the factors on the BNPL business model was determined using a single case study with a mixed methods approach. Qualitative data was collected through several interviews and podcasts, while quantitative data was collected through annual reports and financial statements. The abduction approach made it possible to unfold the interactions between data and theory. The results showed that strategic partnerships between BNPL providers and commercial banks would benefit both. The increased costs due to the rising interest rates and the possibility that governments deciding to close the regulatory gap in the future are hurdles for the BNPL provider. At the same time, the perception of the future is that the BNPL market will become increasingly consolidated due to the intensified competition and changing operating environment. However, the BNPL business model remains popular among customers and merchants due to its efficiency and low costs. The credit card business of banks, on the other hand, has been declining for several years and is further burdened by the BNPL business model. Individual banks and BNPL providers already have a strategic partnership, presenting an opportunity for others in the future. Even though the credit card business is not the most important source of revenue for commercial banks, the increasing popularity of BNPL services and the possible expansion of the business model could threaten banks in the future.