Kiwis paving the way to BNPL supremacy

New Zealand has emerged from the pandemic as world-leaders in the adoption of Buy Now Pay Later solutions, writes Phil Pomford, and the sector’s future is looking bright.

The global payments landscape has undergone a serious shakeup over the past year, with the pandemic catapulting payments years ahead of where they were projected to be. The overwhelming trend has been the shift towards digital payments, with consumers cementing their preference for faster more contactless payments.

New Zealand has emerged from the pandemic as world-leaders in the adoption of Buy Now Pay Later (BNPL) solutions. The growth has been so significant that Worldpay from FIS’ 2021 Global Payments Report projects BNPL in New Zealand will grow faster than any other method of payment over the next four years, increasing its market share to 38 percent and even overtaking credit cards.

With BNPL payments surging, the New Zealand financial market has an opportunity to challenge the existing credit models and completely revolutionise the way consumers think about credit, making for a more innovative and inclusive financial sector.

The BNPL appeal

It is not hard to see why BNPL has become such an attractive option to consumers in recent times. Online shopping has skyrocketed in New Zealand due to the pandemic, with research from the NZ Post reporting Kiwi’s spent a total of $5.8 billion online in 2020, about $1.2 billion more than in 2019.

Amid the financial uncertainly of the past year, BNPL has offered a way to break-up high-ticket purchases into manageable instalments, often without immediate interest like on a traditional credit card. Understandably, this is an appealing option for more budget conscious individuals amongst the younger demographic.

Our Generation Pay research also affirms this, finding BNPL is more likely to be used by younger individuals, and that they are also more focused on setting budgets than their older counterparts, further explaining its popularity within this cohort.

The concept of post-purchase instalment programs isn’t new, but the ease of use, flexibility, and mutual benefit that BNPL delivers at various phases of the value chain has driven the monumental growth of this payment segment. Not only are they extremely convenient for consumers to sign up for and begin using, but they are also integrated within the merchant’s checkout page, offering a smooth and frictionless experience for users.

BNPL prompting banking innovation

As BNPL adoption gains momentum, how will this impact traditional banks? While we don’t have a crystal ball, our research shows that BNPL adoption is likely to come at the expense of credit cards, with New Zealand credit transactions projected to decrease from 37.6 percent in 2019 to 22.8 percent in 2024.

The pressure is on banks to rethink their credit offerings to keep a competitive edge as BNPL and other digital payment offerings take hold. We are already seeing this happen, with several banks responding by removing fees on low balance cards.

Across the Tasman, two of the big four Australian banks have launched cards that have cost structures which are closer to a BNPL service than a traditional credit card as they seek to protect their market share.

National Australia Bank launched the NAB StraightUp card in 2020, which allowed customers to access credit of up to A$3,000 for a flat monthly charge, or pay nothing if the card is not used, while Commonwealth Bank of Australia have also released a similar product.

We can expect it won’t be long before banks in New Zealand are also reimaging their credit offerings to hold onto their customers.

Regulation on the horizon

As BNPL makes further inroads in New Zealand, discussion around regulating the sector has understandably increased. As BNPL loans do not charge interest, they are not regulated as credit products, and BNPL providers have had free reign operating in a relatively new space so far.

In New Zealand, most of the BNPL services have some measures in place to protect consumers, such as credit checks and caps on late payment fees. However, the consensus at government level is that these measures do not go far enough.  

Authorities are also concerned that these services have the potential to lead young people into debt, and a level of responsible lending checks is needed to instil confidence in consumers who are sceptical of this type of services.

Regulators across Asia Pacific are now reviewing the regulatory approach for BNPL schemes as the use of BNPL continues to grow. Last month, a BNPL code of practice created by the Australian Finance Industry Association (AFIA) and a group of its members came into force.

As a world leader in BNPL solutions, we can expect New Zealand regulators to also seek out regulation that enables consumers and merchants to reap the benefits of BNPL in a safe and secure manner, while ensuring financial and social responsibility.

The future looks bright

There is no doubt we have entered an exciting period for BNPL, both in New Zealand and globally.

As the landscape becomes more competitive, BNPL offerings will evolve to be more sophisticated as the new and existing market players look to differentiate themselves.

There are many things that can be done to ensure this growth is viable. By educating the younger generations who are more likely to use BNPL products over credit, this cohort will learn to use the services more responsibly and manage the associated risks, with the benefits passed on to subsequent generations.

We can also expect to see providers become bigger advocates for responsible lending not only by allowing users to set monthly individual credit limits, but also by providing education around personal finance.

These efforts, combined with regulation that strikes the right balance between innovation and protecting consumer interests will help ensure that the BNPL growth is viable, and enable consumers and merchants to reap the benefits in a way that is sustainable now and into the future.

Phil Pomford (pictured above) is General Manager APAC, Worldpay Merchant Solutions at FIS.