What’s a good way to yield top money on your e-commerce or service platform nowadays? It’s to have your customers not pay you immediately. Thus, Buy Now, Pay Later has become the fastest-growing segment in consumer finance. Shoppers want to have it. Merchants want them to have it. And BNPL providers like Klarna (B2C), Afterpay (B2C) or Biller (B2B) are eager to provide it. But what exactly makes Buy Now, Pay Later so popular? And should your business strive for its own BNPL solution?
In this article, we detail…
What the core advantages of Buy Now, Pay Later are
What the 3 major challenges are, when you build your own Buy Now Pay Later solution
How to overcome those challenges with the CoreWallet framework
We don’t only buy from them. We also pay with them.
In contemporary e-commerce and digital service platforms, we observe a growing number of players who enter the realm of fintech. Those originally non-financial companies understand that offering embedded financial services has become a key success factor. And for some: A profitable side business (if they can sell their self-built payment or wallet systems to other companies).
Those companies realize their fintech ambitions in various forms: Some just rely on external partners and simply embed financial services, such as insurance or loans. Others have higher aspirations and aim at core payment processes. They want to run their own payment solutions. Perspectively, external enterprises or customers not associated with their primary business should use them, too.
If we had to guess: The former paragraphs had specific brands pop up before your mind’s eye. Apple, Amazon and Google. WeChat, perhaps. And of course, the term “Pay” attached to all of them.
But besides the big names, non-financial companies from various industries have broken ground in fintech.
In the financial industry, we are never shy to celebrate a good rivalry. Neobanks compete with banks who compete with fintechs who compete with Google, Amazon or Apple who compete with each other (and WeChat). Yet, the industry has also become known for promising partnerships. Technical providers, fintech platforms, merchants, telcos etc. combine their resources and expertise.
I can relate: Where partners with different backgrounds support each other, it’s easier to create approach problems from different angles and overcome obstacles (shoutout to my co-founders here). Likewise, partnerships between fintech companies allow them to tackle new portions of the market and improve customer experience or services – and that’s often the goal. What’s more, where technological partners join forces, we can also see huge jumps in innovation regarding infrastructure. Those companies often lay the groundwork for other companies to utilize in their products and services.
For me, the recent co-op of fintech platform Stripe and Buy Now, Pay Later provider Klarna stands as a prime example of this later case. The cooperation of those two effectively presents a straightforward route to BNPL for single online shops and platforms. Online businesses just have to tie in the Stripe integration and their BNPL is basically ready to go.
However, this would not be as significant, if both Stripe and Klarna had not become known for their extensive service portfolio. Stripe acts as a payment facilitator for online marketplaces while, at the same time, being a fintech platform itself. It’s an expression of a trend some in the industry call the platformization of fintech.
On today’s online platforms, we face an extensive choice of (digital) payment methods, some of them fairly non-traditional (like blockchain-based payments), some having been around for a while (like credit card, direct debit, vouchers and gift codes). In some countries, payment methods that bridge the online and offline spheres of web shopping remain popular, too, such as cash-on-delivery. In others, BNPL and e-wallet-based payment flows are popular. This article will take a deep look into one specific form of online payment, though:
Card-Based Online Payments
These include all manners of payment cards such as Credit Cards, Debit Cards and Prepaid Cards. They may exist in purely digital form or have a physical equivalent. In any case, local banks issue the cards and they operate on the rails of international or domestic Payment Card Schemes.
In the following paragraphs, we will focus on credit card-based payment systems, presenting their basic flows and involved parties (like issuer, acquirer and so on). This article will examine in detail:
Over the last decades, online commerce has become increasingly data-driven. Companies monitor search engine metrics, measure user behavior on their pages or ask customers for their feedback in digital forms.
One branch of data evaluation for e-commerce and service platforms, that promises valuable insights, is Payment Analytics. But it’s also a challenge to set up a functioning environment and make sense of one’s findings.
In our fintech interview series “Finquiry”, payment expert Moritz Königsbüscher addresses the topic and shares best practices.
Our Guest: Moritz Königsbüscher, Freelance Payment Consultant
Moritz Königsbüscher has examined payments from almost all angles. He worked in payments and product management roles in companies both on the payment service provider side and the merchant side (e.g. Arvato, Xing, SoundCloud, RiskIdent). Working as a freelance payments consultant for banks, startups and corporations of varied industries, Moritz recently launched the PreAuth Academy, a service specializing in online payments training.
If you live in a developed country in the modern world you probably do your shopping on Amazon, connect with your friends on Facebook, book your apartment for holidays via Airbnb, order a pizza at Delivery Hero and call an Uber car if you don’t want to drive yourself.
Each one of these companies is an example of a digital platform business and all together they build a so-called “platform economy”.
There are many definitions of what a “platform” is. In the broader meaning, a platform can be any kind of online sales, transaction or technological framework allowing people to connect for any kind of economic, technological or social interaction. Some sources differ between “online matchmaking” and “innovation” platforms, some mention more types of platforms, for example, “innovation platforms” (like Apple iOS or Google Android), “transaction platforms” (like Airbnb, Etsy), “integration platforms” (combining capabilities of innovation and transaction platforms) and “investment platforms” (like Priceline or OpenTable). There is no unique approach in the classification of the platforms.
In the context of this article, we will look at the digital matchmaking platforms (also called transaction platforms) in the first place, like the above-mentioned Amazon, Airbnb, TaskRabbit, Etsy or eBay. The goal of these businesses is to give their users the opportunity to find a service, worker, resource or product that is best fitting to their needs with the lowest possible transaction costs. We will have a special focus on how those platforms are doing the payment processing part for their customers as we believe that frictionless payment is one of the key success factors for online matchmaking providers. And the most interesting challenge would be to try predicting how the payment experience may look in the next stage of economic development, in the so-calledpost-platform world.
Writing a 2021 recap of fintech has been a tough call. No misunderstandings here: A lot has happened in the industry. But we have gotten so used to the future of payments being both digital and mobile (and some would throw a decentralized in there, too). Long familiar talking points continue rotating in the press:
Embedded Finance keeps breaking through.
BigTech companies still follow their payment ambitions.
Invisible payments in mobile and online payment remain attractive for customers.
Embracing Open Banking is significant for all financial players.
The promises of Artificial Intelligence await around the corner.
So what is to write, when we can expect all of this to define the financial industry in the next years? Well, the devil will be in the details: How will those factors play out on the level of specific target groups, use cases or nations? How is the fintech industry holding up as a whole? And what happened in the crypto sphere?
Traditional banking houses no longer hold the monopoly on offering financial services. Instead, companies whose core business initially laid outside the financial sphere have adopted what’s called Embedded Finance. This means that they offer financial services as add-ons and parts of the regular user journey on their platforms.
Originally, financial services were embedded in online shopping or service platforms. Yet companies in other application areas adopt this practice, too. Thus, nowadays we arrive at a big list of different finance-embedding enterprises including:
Logistic and transportation firms
Social media giants
And many more…
What all these diverse companies have in common is their aptitude for digitization. They already deliver on the tech front, mostly; the fin just has to follow. And even as most such companies only started to develop their financial service (or finserv) portfolio, they have vital advantages over competitors:
A widely known branding that many customers are familiar with from their everyday purchases.
A streamlined user journey, into which the financial services can be embedded easily.
An affinity towards innovation and digital transformation – many of them have already shaken up their own areas of operation and are well known for it.
This mixture allows those new finserv players to quickly scale and activate a broad customer base when compared to cold-starting fintech companies.
But what is Embedded Finance exactly? And should banks or fintech companies care?
Let’s spill the beans: You are in the e-commerce business for profit. Not solely for the profit perhaps. But it’s clear that you want to make money. And that means you must figure out how to get paid for the goods and services you offer online. The “how” is crucial: The choice of the Payment Service Provider you want to trust with processing your transactions with customers will resonate in every nook and cranny of your day-to-day operations. If payment doesn’t work, you won’t sell anything.
That’s true all the more if you are operating in multiple countries or across borders – preferences in Payment Service Providers (also called PSPs, Payment Solution Providers and sometimes Merchant Service Providers) fluctuate among nations and demographics.
Now, you can see why the good thing is the bad thing at the same time. With so many options, how could you track down the best Payment Service Provider – the one that fits your business model and your market?
That’s the challenge this article is here to help you with. In the following paragraphs we will provide:
A short definition of Payment Service Providers
A compilation of decision points and criteria, which will help you determine what kind of payment your business needs
A plan B to fall back on when none of the options offered by a single Payment Service Provider appeals to you.
We assume that most of you reading this would picture it as a building. Perhaps with a sleek, dark blueish glass front. Perhaps with towering pillars reminiscent of classic empires. Definitely with ATMs and clerks giving out cash, taken from underground vaults.
But let’s be honest here: Nothing of that represents modern banking services. Since the introduction of online banking and smartphones, banking is no longer confined to a physical place such as a bank building. Banks become platforms: Nor more need for the branch offices of the financial giants. What’s more Open Banking initiatives make SME banking easier, leaving much room for the smaller, more focussed financial institutions.
Those institutions are the domain of the so-called Vertical Banking. Providers engaging in this form of banking cater to a specific customer niche that larger financial houses and neo-banks don’t address as purposefully. But what do those niche banks look like and what role will vertical banking play in the future?