The Week In Payments: NFTs Are The Offspring Of Napster, And Point-of-Sale BNPL Is Set To Scale

Non-fungible tokens (NFTs) were splashed all over the headlines again this week, as Visa emerged as the unlikely buyer of the awkwardly titled pixel art image “CryptoPunk 7610,” when it paid $150,000 to get its hands on its first piece of digital art.

If nothing else, Visa’s unexpected foray into the wacky world of NFTs took some of the spotlight away from the red-hot buy now, pay later (BNPL) pure-plays and major retailers that were busy reporting earnings this week. Afterpay, Klarna, Walmart and Macy’s each continued to show strong growth, while Visa — more predictably, perhaps — made its first major move into BNPL by teaming up with i2c.

Visa Flexes Its Muscles With NFTs

While Visa’s decision to dip its toes into the emerging world of NFTs left many shaking their heads, i2c President Jim McCarthy told PYMNTS’ Karen Webster, calling its purchase of  CryptoPunk 7610 a big validation of the concept.

“To be able to immutably attribute ownership to an inherently digital thing and record that and pass it on through a commercial relationship, that’s going to be very important,” he said.

See more: Visa Jumps From Payment Rails To A Ride On The Red Hot NFT Train

McCarthy explained that the idea of NFTs really dates back to the early days of digital music on the internet and the problem of who had ownership. Back then, of course, it was pretty easy for anyone to download any song or album they wanted on sites like Napster or Pirate Bay, leaving artists and record labels with the problem of how to assert control over their intellectual property.

NFTs, McCarthy said, are a continuation of that conversation, applying newer and better technology in a unique way to be able to assert ownership and control. By snapping up CryptoPunk 7610, Visa has another opportunity to show its power as a market-maker, he added.  “It takes me back to when Visa invested in Square along with Chase,” he said. “That changed the trajectory for mobile POS.”

BNPL Pure-Plays Gain Momentum

The runaway success of BNPL players such as Afterpay and Klarna was evident this week, with both companies reporting fast-growing revenue and merchant adoptions, as well as increases in customers and daily active users. BNPL is on fire, but Webster wanted to know if those startups were already too far ahead for traditional banks to catch up.

McCarthy said the challenge for banks isn’t that they don’t have the underpinnings of BNPL services in place, but rather that they lack the technology stack to piece it all together into a coherent offering at the point of sale. “This is not a new phenomenon; the concept has been around for a long time,” he said.

Related news: Afterpay, Klarna Ride BNPL Momentum, Spend Big To Add In-Store, Online Customers

BNPL pure-plays fixed some big problems for both consumers and merchants, McCarthy explained. For consumers shopping online, they solved the problem of not being able to try on clothes and other similar products before making a commitment to buy. And for merchants, they effectively take away the risk of non-payment and the problem of dealing with returns.

“All of the ingredients existed already, but they put them together differently with a much better user experience,” McCarthy said.

He feels there’s still an opportunity for banks and traditional financial institutions (FIs) to have a stake in BNPL, as the pure plays, while still expanding and growing, also need to find a way to make money.

“For these guys to grow, they’re going to have to look more and more like a bank, which means fraud losses, chargebacks, disputes and so on,” he said. “These are loans, and it’s an arbitrage between getting people to pay on time versus the long losses you’re going to take. So there will be consolidation in the space.”

Asked by Webster if banks could just use their existing credit lines in a different way in order to target BNPL, McCarthy said that’s really why Visa is partnering with his company, i2C. As he explained, Visa is taking existing credit cards and other lines and building an orchestration layer underneath. Merchants are already integrated with those payment rails, he said, so it only has to use that orchestration layer to create a BNPL experience at the point of sale.

Further reading: i2c Expands Visa Partnership For BNPL At POS

“So, you could create this opt-in experience based on the card, where you can say to the consumer, ‘did you know you can make this payment in a series of installments for X amount of dollars?’” said McCarthy. “The advantage of doing it this way is that you don’t have to build a two-sided network, as the rails already exist.”

Big Retailers Are Branching Out

While the banks are mulling what to do about BNPL, big retailers are looking to expand in both the online and the offline realms.

Walmart’s announcement that it’s opening up its last-mile delivery network to third-party retailers and merchants is an obvious marketplace play, McCarthy said.

Read more: Walmart Bets On Delivery Network In Latest Expansion Of Third-Party Services

“In the case of Walmart, I would argue that for years, they were as much a logistics company as anything else,” said McCarthy. “They have [physical] points of presence in this country, and in others, that no other retailer has, not even Amazon. So, they need to leverage that footprint and partner with different retailers to effectively expand their digital presence.”

Meanwhile, Macy’s has announced that it will bring Toys R Us into more than 400 of its retail stores by next year as part of a new partnership with WHP Global, which owns a controlling stake in the toy brand. McCarthy said it’s a sensible move and somewhat similar to what Walmart is doing, only an opposite play into the physical marketplace.

Keep reading: Macy’s Brings Back Toys R Us, Exceeds Q2 Expectations

“It’s more like a European or a Japanese play, putting multiple stores inside its own stores, because merchandising has not been its strong suit of late,” he said. “If you’ve got the locations, then why not open it up for others to participate? Then you have a better experience.”