Buy now, pay later.
It’s a useful way to manage transactional visibility, and I got to speak about it with David True, Founder and Partner at Paygility Advisors.
What we talked about:
- Common gaps in knowledge for non-US companies entering the US market
- Sponsor bank positioning
- The ‘Buy Now, Pay Later’ movement
- Interchange rates and subscription revenue
Common gaps in knowledge for non-US companies entering the US market
David is passionate about FinTech but his expertise is broad. With his team at Paygility, he assists non-US companies with setting up shop in the US market. Since compliance is complicated here compared to many other areas in the world, and as globalization continues, the demand for this type of service is growing.
Paygility will help non-US companies with due diligence and research, shortlisting and selecting financial institutions that are fit for purpose, as well as checking off compliance and regulatory requirements to begin trading in the US market.
“Commerce is really one way that human beings communicate.” — David True
Sponsor bank positioning
The way sponsor banks position themselves comes down to where they each believe that their expertise is, or the make-up of their respective risk profiles. Some of the newer financial institutions can set their businesses up to take advantage of a specific positioning strategy while other banks, who have been around for decades, can create internal divisions to take advantage of market opportunities.
Other banks might work backwards to find these opportunities, beginning with their balance sheet analysis before deciding on where and how to innovate or explore. This method provides a degree of certainty, since the numbers can be used to justify the action which follows.
Sponsor banks and FinTech companies
Many FinTech companies provide a portal of functionality and self-service, that speeds up the path to accomplishing goals and tasks for customers, and also reduces the amount of resources that sponsor banks need to invest in, for the same purpose (including client services). So, even though FinTech companies may technically not be banks, they work with banks, and that makes transactional processes a little more complicated.
In situations like this, legislation like the Durbin Amendment put necessary regulation into place and clarify whose responsibility it is to absorb which portions of which costs. For example, when you use a payment merchant app to make a payment and enter your debit card details, who charges you the transactional fee, and who gets a cut from that, and where does the money live after you’ve paid – with the sponsor bank or in the ecosystem of the payment app?
“Simplicity is a governing principle.” — David True
The ‘Buy Now, Pay Later’ movement
David views simplicity as the governing principle to so much of what’s going on in FinTech and LendTech today. Simplicity for the customer:
- How much time can you save someone?
- Can you enable a one-click or no-click transaction?
- How quickly are you empowering people to achieve their desired results?
The driver of this movement is the growing interest, from society, in debit products. People want to know what they’re spending, where and when, and feel more in control of their funds. Upfront communication about fees is more appealing to people, even if the transaction occurs later – visibility and transparency win.
‘Buy Now, Pay Later’ is ultimately a different way of managing debt.
Is it a threat to credit?
David recommends visualizing credit, buy-now-pay-later and cash transactions in a Venn Diagram, where there’s a degree of overlap but each product has its own space too.
There are different segments within the market looking for different services, which is why the movement is taking off and more firms are offering this type of payment arrangement.
As is sensible to do, limits can be applied to how much transactional value can be assigned for delayed payment, so while there might be a diversification of payment models, it doesn’t appear to be a total eclipse threat to credit products from David’s view.
Is it viable in the B2B space?
This would depend on the size of the businesses in question. Smaller businesses that rely more heavily on individuals making decisions, like sole proprietors, could benefit from something like this since their behavior is aligned with that of consumers. Bigger businesses, with controllers and CFOs, wouldn’t likely be interested in something like this since they probably have more options available to finance their decisions.
Interchange rates and subscription revenue
Linking back to the Durbin Amendment and its implications on interchange rates, David discusses how something as simple as an interpretation of the Amendment can affect revenue through interchange rates. If regulation of interchange rates changes, it’s possible that FinTech businesses relying heavily on that for income could find themselves in serious trouble.
Subscription revenue models are more within companies’ respective control, which is possibly one of the reasons that this model is growing in popularity.
“Regulation is a necessary burden. ” — David True
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Until next time!