EXCLUSIVE: “Why Buy Now, Pay Later?” – Karen Mae Ching, AWS; Simon Hammerschmidt, Mambu and Ingmar Stupp, Tilta in ‘The Fintech Magazine’

Buy now, pay later (BNPL) credit services have taken the world by storm. But how do they help SMEs and why is it important for a SME-focussed bank to offer them? Ingmar Stupp, Founder of Tilta, Simon Hammerschmidt, Global Head of Strategic Partnerships at Mambu and Karen Mae Ching from AWS share their thoughts.

THE FINTECH MAGAZINE: Why should banks be interested in offering a BNPL platform or product?

SIMON HAMMERSCHMIDT, MAMBU: BNPL is a revenue stream that’s taking money away from traditional banks. We’re seeing huge growth. The market’s saying it’s going to be worth $650-$680billion by 2025. There are some very interesting stats now about the sorts of people who are adopting buy, now, pay later as a solution. I have two young adult children and they’re now adopting it; they’re looking at Apple, who are launching a buy now, pay later service on iOS 16. So all sorts of providers are coming into the market, and the banks are going to need to move quickly, and with new products, if they want to catch up with the fintechs who are disintermediating them.

KAREN MAE CHING, AWS: Every time you innovate, people have doubts – until you prove them wrong. What I like about BNPL is, as one article said, it’s how we teach retail to think like a bank. Because if you owe something to a bank, you have a schedule of payments and there is an amount of back-end collections happening. And when you have losses, it goes directly to the bottom line of a financial institution.

With BNPL you are not spreading your risk, but concentrating it over a very short period of time, so it increases sales exponentially. If you know you have the right balance of risk and reward, that’s what financial institutions and businesses go for. But how do you now make sure that nobody defaults? It’s really painful to collect from something that’s not a secured credit. So there’s a certain risk and reward there for institutions. The differentiator is how you now marry that to protect the institution, and then to protect your customers.

TFM: How could BNPL be used by businesses during this financial crisis?

INGMAR STUPP, TILTA: The current situation is very interesting. Businesses will run low on liquidity, interest rates are rising, and they’re looking for alternative forms of receiving working capital. And, actually, what happens first – before going to financial products – they push working capital up their supply chain.

So you purchase something from someone, but you start paying them late, which means that someone, then again, receives their funds late, and they do the same towards their suppliers. And then the working capital problem is basically just pushed up the supply chain. You can improve working capital, creating a benefit for yourself, but only at the expense of someone else. So you’re shifting the problem along the supply chain, sometimes forward, sometimes backward. But with a third party entering a transaction, you can take this away, and basically have both parties not be faced with a trade-off, but actually benefit, and improve their working capital, because the financing and the risk is taken over by that third party.

This article was published in The Fintech Magazine Issue 27, Page 55