Buy now, pay later: Five business models to compete
Financing at the point of sale may be a small share of unsecured lending in the United States today, but it’s growing fast. Banks seeking long-term growth should explore market entry, and merchants should reassess their financing offers.
By Puneet Dikshit, Diana Goldshtein, Blazej Karwowski, Udai Kaura, and Felicia Tan – Point-of-sale (POS) financing services in the United States have grown significantly over the past 24 months, especially since the onset of COVID-19. Trends fueling growth include digitization, rising merchant adoption, increasing repeat usage among younger consumers, and an expanding set of players targeting lending at point of sale, a service also known as “buy now, pay later.”
Thus far, fintechs have taken the lead, to the point of diverting $8 billion to $10 billion in annual revenues away from banks, according to McKinsey’s Consumer Lending Pools data. In our view, only a few banks are responding fast enough and boldly enough to compete. Banks that underestimate the threat may see continued loss in share and could lose out on participating in a growing value pool and gaining share among younger and new-to-credit customers, as banks in Australia and China did when facing a similar situation. To avoid that outcome, US banks need to understand the landscape for POS financing and choose from among the emerging models.
This article seeks to give POS financing players as well as merchants the necessary insights to refine their strategies in the POS-financing arena. It provides an overview of the market, details key trends and factors influencing growth, and offers ideas for market entry for banks and partnerships for merchants. The insights are based on McKinsey research, including McKinsey Consumer Lending Pools (a proprietary database covering granular market size and growth trends), the McKinsey POS Financing Consumer Survey and POS Financing Merchant Survey, and our recent experience with banks and merchants. more>