Paying later for things that we purchase today has been around in various forms for a long time, popularized by white goods, manufacturing, and clothing vendors, who provided installments or interest-free credit. In its current form, buy Now Pay Later (BNPL) has been in usage for the last four years now but has grown in prominence as a preferred option for payment and credit by customers and vendors alike. Customers can make a purchase without having to pay much initially but make payments in installments over time. There are various ways in which the payments can be made, and interest is charged if the customer fails to make payments and different fee structures for using such a service.

The rapid growth of Buy Now Pay Later usage in recent years, and increasing acceptance by merchants has confirmed that financial institutions cannot ignore this relatively new phenomenon. Merchants see an increase in revenues, and BNPL is an attractive payment option for consumers due to its lower impact on credit score, increasing regulations on getting a credit card, and a fairer interest rate. Today, nearly 1 in 5 (18%) Australian consumers and 1 in 4 young Australians (18-29) hold BNPL debt in Q1 20211. In addition, an increasing number of BNPL users intend to cancel their credit cards soon and use BNPL instead, especially for purchases ranging from $250 to $2,000.


However, only a tiny fraction of payments2 is made using BNPL, indicating immense scope for growth and adoption. Research1 suggests that this impacts the way millennials and Gen Z users approach to credit and how they intend to pay for what they want.

Our view is that the drastic changes and acceleration of the digital revolution brought about by the global pandemic will increase awareness of BNPL and trigger changes in purchasing habits across all age groups and smoothen the curve in adoption.

Traditional banks, save a few exceptions, struggle to attract new younger customers and deepen existing relationships with all customers. More and more customers view financial institutions as transactional service providers rather than long-term relationships. While BNPL is currently not a regulated product due to its interest-free nature, there will undoubtedly be some changes if and when it becomes regulated.

Fintechs are surely but steadily eating into the revenue of banks3 from their consumer lending portfolios. Traditional market players have responded with different offerings in this space and/or using investments in Fintechs operating in this space, some successful and others not so much. There are certain strategic advantages and disadvantages for the larger banks trying to compete in this space.


This article explores some of the basic tenets that we believe are important in this journey.

  1. Digital nativity: Many banks have a digital team in large transformation programs responsible for the digital components to be delivered as part of the transformation exercise. Most fintechs don’t have a digital team, as they start from digital and move to other platforms if required. This fundamental cultural perspective results in many of the other differences we see between the respective approaches. For banks, this needs an organizational cultural shift and a significant overhaul of their working methods to align with this new model. Many banks have managed to make this transition successful.

Our recommendation: We should make it happen FASTER!

  1. A user is a user: Gone are the days when banks could design a fantastic customer experience while providing internal users with an archaic, cumbersome, and slow system and an “OK” experience, blaming the amount of information required by internal users. A user is also expecting a similar experience and does not understand why the information required from a completely digital experience is less than when a user is involved.

Our recommendation: We should treat users and customers the same

  1. Data-Driven: Larger traditional banks have a marked advantage over smaller players due to their investment in data platforms across the value chain. Mostly, granular data is available for most decision-makers to leverage. The trouble is to ensure trust in this data and everyone is looking at the same data. Therefore, trustworthy models need to be established across the value chain with transparent lead and lag measures.

Our recommendation: Strengthen data infrastructure and build trust

  1. Lean-Agile Mindset: It is vital to determine a Minimum Viable Product (Service Offering) that addresses a complete journey for one set of users rather than part of the journey for too many users. Design the Leanest value stream possible and agree with all stakeholders while acknowledging that this will change. Continuous monitoring and improvement are key factors determining our ability to pivot and respond to market changes on time.

Our recommendation: We walk before we run

In summary, our view is that BNPL is here to stay in one or the other form. Traditional financial institutions are already reckoning this and are reviewing their overall credit portfolio to position themselves in this new landscape. However, while doing so, it is crucial to think like digital natives, leverage their unique advantages such as their data infrastructure and partner networks, and always be ready to pivot.

In our next post in this series, we will discuss a structured framework of approach to go to market with an offering.


  1. NAB Consumer Insight Report: Buy Now Pay Later
  2. How Australians Pay Snapshot | Education | RBA
  3. Developments in the Buy Now, Pay Later Market | Bulletin – March Quarter 2021 | RBA
Ramki Natarajan

Ramki Natarajan

Principal Consultant

Ramki is a Principal in our APAC region focused on Banking, specifically Mortgages. He has 15 years of experience designing and delivering process and technology solutions that address business requirements of various banks and other financial institutions. Experience includes Business Process Transformation and Technology transformation in the areas of Mortgage Origination, Billing, Regulatory Reporting and Business Intelligence. His current learning interests include Lean Design, Digital transformation and Value Chain Management, etc.

Raju Gholley

Raju Gholley

Senior Consultant

Raju has around 12 years of business and technology consulting experience primarily in Retail banking, Consumer finance, Mortgages ,Commercial banking and Wealth Management. He has executed a number of advisory and business transformation projects for leading financial institutions  across US, India and Australia. Key areas of experience include Digital strategy , Business Design, Vendor evaluation, Core banking transformation, product management, IT strategy and roadmap, Agile delivery and project management.

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