A 'behind the scenes' BNPL firm seeks to bring banks to the market

The buy now/pay later market has a big gap that needs to be bridged between fintechs on one side and old-school lenders on the other, according to Yaacov Martin. 

Amid the disruption caused by inflation and other economic factors, the safest place to be is between those two categories, building that bridge, according to Martin, co-founder and CEO of Jifiti, which sells technology that allows larger firms to add and scale buy now/pay later lending.

"We have always steered clear of becoming a balance sheet lender, or taking that risk on," Martin said.  "We're more of a tech provider for regulated financial institutions." 

Jifiti recently partnered with Fortiva Retail Credit to expand its BNPL network, and added a former Citigroup retail banking executive to its board of directors to add a source of consultation for product development.

Jifiti is anticipating a trend toward banks offering BNPL given the falling valuations in BNPL fintechs in a period of stock market decline and Federal Reserve rate hikes. The fintechs are also under scrutiny from the Consumer Financial Protection Bureau and other regulators globally. 

"Banks are stable regulated financial institutions that have a lower cost of capital and they're sitting on deposits. They can withstand this type of turmoil in the market, and they're measured based on profitability, not user growth," Martin said. "But what they're lacking is the technology and the platforms to scale their lending." 

Many fintech BNPL lenders fund the loans from their own balance sheets, according to Reuters. "The fintech companies that are also balance sheet lenders fall under more pressure than the tech market in general," Martin said.

Evidence of the trend toward bank BNPL can be found at Visa, which has added BNPL to its Visa Ready program, which matches fintechs to credit card issuers. Visa has accumulated about two  dozen companies to help issuers launch BNPL programs through an application programming interface. ACI Worldwide, FIS, Marqeta and Cross River Bank are among the firms that are part of Visa Ready's BNPL program. 

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Mastercard has also added bank technology provider Amount, virtual card issuer Lithic and digital card issuer Deserve to the card network's strategy to connect banks to BNPL lending. 

Among Jifiti's bank clients, Citizens Bank has offered BNPL for several years, starting with financing for iPad purchases. More recently, Citizens has used a series of partnerships to add more categories such as big box retail and travel.  

Fortiva works through a Bank of Missouri-managed network of regulated lenders to provide "second look" credit to consumers who don't qualify for prime lending. Fortiva uses Atlanticus Service's data aggregation and analytics to determine approval and terms at the secondary lender. 

Jifiti is integrating the Fortiva Retail Credit program into its white-lable BNPL technology to improve the user experience for BNPL lending at merchants, as well as allow scale to add more merchants and lenders. Open technology development powers the connections between partners. 

"BNPL tech in many ways is playing into the open banking movement," said David Chuback, a board member at Jifiti. "It's enabling connections between the bank, merchants and consumers." Chuback joined Jifiti's board in May. He is the former CEO of Citi Retail Banking in the U.S., where he led a division that operated 78 million co-brand and private label credit card accounts with about $92 billion in annual purchase volume. At Jifiti,  Chuback is contributing to the company's bank and retail partnerships. 

"Banks have learned that going solo on BNPL and doing it yourself is hard," Chuback said. "Fintechs have been able to upend the market." 

Banks bring a history of regulatory compliance that helps navigate credit and economic cycles, along with the ability to offer a broad financial product suite that makes BNPL more of a feature than a core focus, according to Chuback. 

"BNPL can fit into consumers' wallets as something they can use when they need it," Chuback said. 

Other technology firms that are selling technology to connect banks to BNPL include Splitit, a BNPL firm whose core product includes accessing unused consumer credit to fund point of sale lending. Splitit uses partnerships with Visa, Mastercard, Discover and UnionPay to avoid consumer registrations at checkout.  

In an earlier interview, Splitit CEO Nandan Sheth said merchants are looking for a cost-efficient method of payment, but they are also looking to manage lending risk. Other firms that offer point of sale lending technology to banks include Equipifi. 

Even as fintech valuations fall, the impact of firms such as Klarna, Affirm and Afterpay is pushing banks to innovate. Banks that offer BNPL will allow merchants to offer consumers an additional payment option, giving them a competitive advantage over other technology companies such as Apple, which recently announced its plan to launch a "pay later" service as it develops its own payment processing technology and infrastructure, said Vijay Sondhi, CEO of NMI, a merchant technology company and consultant. 

"BNPL developments from fintechs will put additional pressure on banks to provide these new types of payment innovations to meet customers' ever-changing payment needs and create a frictionless checkout experience," Sondhi said. "There's immense opportunity for banks and financial institutions to partner with a payment provider to build out the infrastructure needed to compete directly with fintech disruptors to provide BNPL and whatever's next for payment innovations."