September 21, 2021
There’s rising concern in the financial world that the buy now, pay later platforms will eventually replace banks, Reuters explains.
Helped along by the pandemic, embedded finance is becoming more popular by the minute with global brands such as Amazon, IKEA, Mercedes, Walmart, and the fintech company Square. Amazon, for instance, uses BNPL solutions to allow people to pay later for the product they want now, whereas Mercedes uses Fuel & Pay, a fast and secure payment option that lets you pay right from the front seat of your car.
Is This a Problem for Banks?
While people still use payday loans with higher interest rates when in desperate need of money, BNPL services often offer an interest-free loan.
BNPL and other similar services are driving credit card use further from credit cards with no interest rate and secured credit cards and are gradually making way for a new type of payment. BNPL services are still dependent on the banks because they are behind all the transactions. However, analysts expect that the banks will have to step aside from the wheel and sit on the passenger seat in the near future.
Matt Harris, a partner and investor at Bain Capital Ventures says, “Embedded financial services take the cross-sell concept to new heights. It’s predicated on a deep software-based ongoing data relationship with the consumer and business […] it means that all the good risk is going to go to these embedded companies that know so much about their customers and what is left over will go to banks and insurance companies.”
However, as popular as embedded finance is becoming, it still lacks the deep funding pools of the biggest banks, which means that banks are still a force to be reckoned with. But the moment these services achieve the same success as the banks, the latter will certainly experience losses and will have to respond in some way.