Third Generation of BNPL Holds Potential to Reshape Entire Credit Industry

There was Web 1.0, Web 2.0, the mobile web, the metaverse — you get the idea.

It’s an evolution.

We find much the same pattern in installment credit — what we could call buy now, pay later (BNPL) version 1.0. What started in the Great Depression all but vanished by the 1980s and was briefly revived when big players like Sears and Walmart brought back layaway plans in the wake of the 2008 market crash, only to be discontinued later.

Of course, there have long been store-issued credit cards that function as installment payment vehicles — as do traditional credit cards, for that matter. Still, the pure plays that revivified layaway into its current form with the promise of no interest or deferred interest are the BNPL 2.0 wave.

As Nandan Sheth, CEO of BNPL FinTech Splitit, told PYMNTS in an interview, this second wave has changed eCommerce significantly over the last few years.

“Those providers [have] done a phenomenal job of proving that consumers like the [BNPL] value proposition,” he said. “Already, based on those providers and those innovators, buy now, pay later is 2.1% of all eCommerce globally. When you think about it, it’s happened in a fairly short amount of time.”

Perhaps more than its popularity, BNPL’s true impact is changing the consumer’s relationship with and ideas about getting and using credit, with these options now abounding. Appointed as Splitit’s CEO in January after a successful turn at Fiserv as head of global digital commerce and head of the company’s Carat business, Sheth believes that BNPL is returning to its roots in some ways as the sector moves toward incarnation 3.0.

“Bringing this within the consumer journey, allowing for an almost instant decision — then allowing the benefit to accrue over a flexibility period of three payments, six payments, 12 payments — if you think about it, in some industries, it’s become the norm,” he said, pointing to cellphone sales as an example.

Expand that thinking to almost anything you can buy, and BNPL 3.0 comes into focus.

See also: Splitit Integrates With Salesforce Commerce Cloud for Streamlined Checkout

Who’s Your BNPL Brand?

How will BNPL 3.0 improve on a service that’s already got serious legs worldwide?

“The experience is going to be a lot cleaner,” Sheth told PYMNTS. “There’s not going to be as much credit bloating for the consumer. I think 2.0 legitimized buy now, pay later at the point of sale and eCommerce checkout.”

Perhaps most strikingly, he believes BNPL 3.0 will evolve to consolidate and unleash consumer buying power in ways only possible with deep data and 5G speeds. It will also likely see pure plays cede some ground back to merchants who have the wherewithal to offer BNPL in-house.

“I think you’re going to see a more white-label experience,” he said. “If I’m shopping at The Home Depot, for example, you’re going to see a Home Depot pay-in-installments program.”

Which brings things back, in curious reversals, to where BNPL started long ago — only this time, it has the digital capability to calculate and tap into unused credit capacity for BNPL purchases.

“The brands that matter at checkout need to be the merchant’s brand and the issuer’s brand,” he said. “We want to be the ‘Intel Inside’ that becomes the buy now, pay later infrastructure, allows large brands to maintain consistency on their checkout — but most importantly, allows issuers with available credit to monetize the buy now pay, later experience.”

Related: BNPL Firm Splitit Partners With Discover Network

The 3.0 Take on Relationships

Evolution is evident everywhere in the BNPL sector as new use cases pop up regularly, even in unexpected places like fine dining restaurants and grocery stores. With inflation at a 40-year high, affordability tools are sought even by those with enough money and access to revolving credit.

High-ticket items are one of the areas where BNPL is pushing back boundaries, which not only pleases consumers, but also tends to increase order values for merchants.

“Higher tickets have been a bit more challenging for the pure plays,” Sheth said. “For us, it’s kind of our sweet spot. If you look at our average ticket, it’s almost $1,000. Some of the others are in the $200 range. We’re taking down the open to buy and unlocking that.”

Repeat buying patterns among this higher ticket user group is another point of interest.

“The propensity to repeat purchase from those consumers we’ve noticed is exponentially higher,” he said. “Over time, their average ticket goes up.”

As for where Sheth is taking Splitit from here, he told PYMNTS that “No. 1 is to drive maybe two, three, four large merchants so we can start to prove this in that tier.

“No. 2, we want to partner with acquirers. We feel that they’re getting disenfranchised by the pure plays. We give them the ability to keep those transactions on their rails [and] have a direct relationship with the merchant. We don’t get in the middle of that.”

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