EXCLUSIVE: ‘Banking on BNPL’ – Yaacov Martin, Jifiti ‘The Fintech Magazine’
Point-of-sale finance technology has changed the nature – and availability – of credit. But in the banks’ hands, it could revolutionise it, says Jifiti’s Co-founder Yaacov Martin
Buy now, pay later (BNPL) fintech Jifiti has a simple mission: to enable banks and lenders to give consumers access to affordable and responsible credit products at point-of-sale (POS) – in store and online. Three words jump out from that. Enabling banks in the BNPL space allows for an even wider and deeper reinvention of credit, beyond the smaller ticket items that the likes of Klarna and PayPal’s Pay In 3 facilitate. Bank institutions have the financial clout to potentially revolutionise the way finance is provided.
Additionally, many would say that greater access to BNPL for consumers, in-store and online, is a natural democratisation of finance. Removing draconian barriers to lending is only providing the instant gratification for products that punters are already accustomed to, through the likes of Amazon and on-demand TV. But, on the flip side, can we ensure that lending is responsible? With easier access to credit, are we in danger of encouraging potentially reckless borrowing by consumers? Clearly, there is a balance to be struck.
Traditionally, banks have been risk-averse players, relying on interest rates to reap revenue, but in the current low-interest-rate environment, there is a need to boost their balance sheets. And this is where an offering in the BNPL space may be a game changer, according to Jifiti co-founder Yaacov Martin. Calling banks Jifiti’s ‘sweet spot’, Martin explains: “I think we all know what banks are very good at, and what they have struggled with – and it’s become pronounced over the last two years or so, as we’ve seen the BNPL industry explode. Some of the new-age BNPL providers have deployed incredibly well, primarily on e-commerce sites, quickly and efficiently, with a very smooth and easy user experience. Banks, less so. But what banks have to offer is tough to compete with – very competitive pricing on the funds they are able to lend.
“They’re able to go deeper and larger, in terms of loan size, and allow programmes to last for a much longer period of time. They have the balance sheet and they, mostly, have the underwriting capabilities. What they’ve struggled with is deployment – and that is the gap we fill. We enable banks and other lenders to really scale their POS finance business.”
Clearly, banks offering accessible BNPL functions will be a much-needed leg-up for retailers fighting to rebuild post-pandemic, but also a sea-change for consumers who, even with a fantastic credit score, have to jump through hoops to enjoy still-onerous finance terms.
“These type of BNPL finance products are not only for situations where a consumer has no credit left on their existing card,” Martin points out. “They are supposed to provide them with a more affordable credit line, and, at the end of the day, banks are always going to be cheaper when providing BNPL services to merchants and customers, due to their lower cost of capital and other advantages of scale.”
A multinational player, the company’s white-labelled financing platform enables banks and lenders to easily and seamlessly deploy their loan programmes at any POS – online, in-store and via call centre. The inspiration for Jifiti’s current business model grew out of its history of providing various POS and online checkout services. “We found that integration with merchant systems – specifically POS in-store – is a tremendous headache. It is expensive and lengthens the onboarding process significantly. At the end of the day, deployment for banks and lenders is dependent on the ease and speed of integration with these systems. Having figured out how to either eliminate or speed up integration in other sectors, we realised this was the next industry where we could provide real value – to banks, merchants looking to increase sales, and consumers too.”
Martin says Jifiti’s role as a facilitator alleviates much of the angst surrounding routes to credit. Its partnerships can either be merchant or bank-driven. Retailers can select from any of the banks it already partners with or choose another they want to work with, in which case Jifiti partners with that bank to serve as their platform for deployment of POS finance. Either way, Martin says, it’s relatively easy for a merchant to be up and running with a BNPL product.
“On the other hand – and maybe this happens more often – we partner with a bank to serve as their platform for deployment of POS financing, and, in those cases, merchants will come through our funnels. The banks’ merchant services or business development and sales team will onboard the merchants through our platform,” he explains.
Martin uses the purchase of new living room furniture, as an example of how easy and consumer-friendly buying a high-value item facilitated by a bank-originated larger loan can be in practice.
“With something like this, the customer is probably going to want to physically see or touch the item. So they can apply for BNPL through their own mobile device on site. They’re able to immediately start an application, there will be signage
with a QR code, or a link, branded for the specific merchant and bank behind the programme,” Martin says. “Next, they’ll fill out a fairly short application form, usually about seven fields, with their information, and a credit decision will be rendered immediately. Then, as a consumer, they will be either provided with the funds on a digital card to complete their transaction, or sometimes through a disbursement, which we also facilitate directly to the merchant. In short, customers will be able to either walk out with goods or, if they’re online, they’ll be shipped straight to them.
“Jifiti does not lend. Jifiti does not underwrite. We do everything around that, to enable large institutions to lend at POS. In instances where there is a need for extending credit for larger-ticket items, or for longer durations, merchants want to understand how quickly they can have this available, whether it’s in store or online, and we map that out for them.
“For the merchant and consumer, it’s a win-win,” says Martin. “Merchants that utilise BNPL fintechs end up paying a transaction fee of three-to-six per cent every time the service is used, but BNPL through a bank costs vendors significantly less. Meanwhile, for consumers, we offer a more affordable credit line to, say, credit cards.”
But what about the flip side – the notion of responsible lending? With BNPL making access to credit easier (that is, after all, the point of it), there is a concern that it could become a ticking time bomb for consumers. Fiona Guthrie, CEO of Financial Counselling Australia, for one, makes a strong case for regulating this growing industry, citing the perils of consumers taking on ever-larger purchases, without the creditworthiness checks that come with a standard loan.
Several UK charities, including Citizens Advice, have also raised concerns over the growing use of BNPL, after they saw users getting into debt and struggling to pay for food and bills. In an age of ultra-consumerism, will individuals be tempted to over-reach themselves? Enabling merchants to sell more is great, but how do you ensure that, at the end of the day, you are not saddling vulnerable people with unmanageable debt? From a moral point of view, that’s clearly wrong, but bad debt is also bad for long-term business, including for lenders, says Martin. It’s something that Jifiti keeps front-of-mind.
“We’ve seen, in other industries, as services become digitised and user-friendly, that there is a risk that they become too accessible. And we’re seeing in a few markets now that regulators are taking a very close look and determining if, when and where they need to get involved with certain BNPL products that previously have not been regulated,” says Martin. “At the end of the day, it’s going to reach some kind of equilibrium where the accessibility will be there, but within the guidelines. That way, we will ensure that the lending is not only seamless and affordable, but that it is also responsible.
“Among all of the clients we serve, responsibility is the factor that really sets the strategy,” he adds. “We are working with larger financial institutions, which are heavily regulated themselves, of course. This gives us a safety net when it comes to making finance accessible, in a responsible way.”
Big banks can’t afford to ignore the growing role BNPL plays in the financial landscape, continues Martin.
“A bank’s objective is to deploy its balance sheet. In order to do that, it has to make sure that it shows up as an option where and when is most relevant to the individual or business looking to take a loan, or to receive finance,” he says. “Banks are in a position of strength, but they should also understand where they fall short and where they should partner to offer a regulated product with a friendly user experience. I think we’re going to see a certain resurgence of traditional and incumbent banks – hopefully through partnerships with fintechs like ourselves. Now that banks are catching up in the BNPL space, the advantage is theirs to gain.”