Real-time payments are rapidly changing the fintech landscape, as consumer preferences around simplicity and affordability continue to evolve. In 2020, instant payments reached a global market value exceeding $10 billion, with no signs of slowing down. This session will delve into the rapid expansion of Buy Now, Pay Later offerings, why consumers are increasingly using BNPL for payments, particularly in retail transactions, and the long-term ramifications created by the phenomenon.
Transcription:
Kate Fitzgerald: (
Okay, we're gonna get started on our first session of the afternoon. We have a real powerful panel here, the topic innovation starting from the point of sale, what could be more appropriate than, a bunch of people here that represent the cutting edge of all that? Brian Schneiderman US CEO, Global Strategy Officer at OPY Is a buy now pay later firm, Brian has a long and, very expert history in all things payments. So he's gonna be useful on a number of levels to us here, Oliver Burns, on his left, Head of Strategic Partnerships at FIS... FIS being, having a hand and a foot in nearly every aspect of point of sale end other connections for payments and on the end, George Danforth, COO at Splitit, another by now pay later firm filling in for Nanden Sheth who was unable to make it. So the idea we're gonna start with just a general point of view. Brian, can you give us about a minute Oni and where exactly in the ecosystem your product is delivered?
Brian Shniderman: (
Yeah. Thanks Kate. So what I was at , Deloitte for half of my 34 year career, and I saw a really big gap in the us market for something that would sit right between the traditional consumer lenders, right? Like the synchronis and the green skies and all these new buy now pay laters. So sort of right in the middle was a really big gap, and we innovated on both ends to create O.B, which is a product that goes larger and longer than buy now pay later. So 24 months and up to $20,000, was very focused on specific verticals like healthcare, so that we could have really, really low loss rates and offer the first true flat fee product. A fixed rate, never changes day late, dollar short, the same flat fee keeps going. It's like a fixed rate mortgage, but in the consumer lending space, so larger, longer flat fee. And that's what we focus on, we integrate it right into the, various technologies that different industries like healthcare and auto service and repair use. So it's, it's integrated pretty important part of what we do as well. And we do it through big wholesale partners. Like many of you FIS is a partner of ours, American express. So we distribute as a wholesaler, not as a B NPL going straight to the merchant. So that's what we do.
Kate Fitzgerald: (
And just, just in terms of the, point of sale currently, are you available when you say that you mean digitally where exactly what percentage of the transactions are happening on at digitally
Brian Shniderman: (
Right now? Yeah, so, today the global company open pay has about 1.6 million active loans. Outstanding, and we are both at the point of sale as well as through, e-commerce, we integrate into gateways so we can be online. but also into the terminals right there when they're, you know, making their decision
Kate Fitzgerald: (
Is the majority of it still eCommerce
Brian Shniderman: (
It's both actually. And, to answer it, you'd have to look at the specific verticals cuz as you could think of like, you know, healthcare a lot of times you're at the point of sale, right. But when we get into home improvement and things, we start to see a lot more online. Okay. So, it's both and it really changes based upon the vertical and sub-vertical
Kate Fitzgerald: (
So all of that is really much in influx right now, which we're gonna get back to. So Oliver, can you talk a little bit about FIS and where you see the perspective of the point of sale? What does that mean exactly for FIS right now?
Oliver Burns: (
Yeah, I would say point of sale for us means means a couple things. it depends upon whether you look at our merchant business, which many of you might know is world pay, point of interaction, we look at that in the context of our banking segment, where banks are customers of ours and point of sale, I think probably putting a finer point on it. I'd focus on the first part. And so our merchant business, the world pay business we have physical point of interaction. what many of y'all would know is omnichannel, where we can support, in store and app mobile e-commerce experience and then in any flavor, any, any combination of those? so we have that in a variety of markets around the world, obviously, the U.S, UK and Europe are major markets for us, but we're also domestic and a few dozen other countries, around the world.
Oliver Burns: (
And so when we think about, point of sale it's anytime one of our customers wants to engage one of their customers. And I think one of the things that Brian talked about, and I know George, will also spend some time on, is the experiences dependent upon the customer persona. So our customer could look a little bit different, if it's in healthcare or if it's in high value purchases versus things that we might do in traditional retail or luxury retail. And so as we look at our journey with, the future of finance, the future credit, we've had a history at, at FIS and world pay of enabling and supporting different ways consumers or businesses can pay. And that's quite important. And we also try to look at that through the lens of the consumer, through the lens of the market, through the lens of the industry.
Kate Fitzgerald: (
And, that's very interesting setup for George from split it, which for people split, when was split, it founded
George Danforth: (
Oh goodness. About six years ago. Okay. So it's been around
Kate Fitzgerald: (
Sometime. Well, you call that. Yeah. Real, real, real old. And then split, it is obviously in the, by now pay later sphere, but it's a little different. Can you tell us how?
George Danforth: (
Yeah, so split, it originated in Australia by way of Israel, I believe. And originally was, a by now pay later provider that was not wholly dissimilar from those that you're familiar with out there today. And that it looked at itself as a consumer brand and was doing a lot of consumer marketing. The thing that made split it different was that it utilized the credit card rails. So, all of the untapped opened to buy credit. That's out there a few trillion dollars that look to leverage that and have buy now pay later against existing, open to buy credit, the pivot we've made Nandan chef is a new CEO coming from Fiserv. And before that ACC link and Harvard payments and American express and to have a new executive team and we're pivoting the company now to utilize these assets in a new way. the problem set as we see it is that the ecosystem, the traditional ecosystem in payments is being disenfranchised by BPL. In our view, today the BPLs are a button, if you will, say on a website or otherwise, and then captures that consumer relationship and then, fulfills, underwrites them in near real time and then fulfills that those payments on the back end in arrangement with the consumer, we think that, we, our job is to enable the existing ecosystem of credit card issuers, networks, merchants, and others, to be more relevant at the point of sale for buy now pay later, because, so
Kate Fitzgerald: (
It sounds like you're you're, you're trying to, disrupt the disruption with
George Danforth: (
That's exactly what
Kate Fitzgerald: (
We're trying to do essentially with, leveraging legacy rails.
George Danforth: (
True.
Kate Fitzgerald: (
Okay. Absolutely true. So innovation being the theme here, we're gonna, we're gonna go start back with, Brian. So what exactly, even in the middle of buy now pay later this phenomenon, which has been around, in some cases you wanna talk about buy now pay later being years old, but more recently the real momentum in the United States has been over the last two, two to three years. What has happened, most recently with innovation and what do you wanna talk about in terms of where you think that's going next?
Brian Shniderman: (
Yeah. If I'm sitting on that side of the room and I were, you know, looking for one really insightful thing to take away about B NPL and every day now I wake up and see B NPLS on its way out. It's dead, it's dying, it's not sustainable, the reality is B NPL is going to evolve. It is evolving and it's innovating. And to think that it's gonna be static and stay paying for is already proven not to be right. So Kate, I think number one, what we're seeing is it's evolving into something that is not just a pay in for it's evolving for people that are more, to the prior speaker affluent it's people that have money, maybe 50,000 of dollars in cash in the bank, but they don't necessarily wanna spend it. It's maybe emergency money for food and rent.
Brian Shniderman: (
They don't wanna spend it on a kid's braces, it's a different mindset that says it's going to evolve, and yes, thank you for putting the slide up, cuz this slide actually shows the evolution of where I believe B NPL is going. I mentioned where a flat fee never changes. That's that's very new, but the one thing that would stand out if I'm on that side of the table, thinking about is B N P important, should we pay attention to it is instant credit at the point of sale using a closed end loan and that's different. And that's something that I've bet my career on Kate is that when you know exactly what somebody's going to buy, where they're gonna buy it, when they're gonna buy it from whom they're gonna buy it and what their score is at their credit score. At that moment, you don't have to overprice a whole bunch of uncertainty goes away. And so when you look at those that use an open-ended line of credit or if you look at traditional lenders, I mentioned a couple of them that have a credit card product they're overpriced, they're too expensive. And it creates a lot of constraints that the innovation that we're doing cause ours is a closed and instant credits point of sale. It eliminates a lot of the inefficiencies that come with that open-end line of credit and that's innovation in B
Kate Fitzgerald: (
NPL. It sounds like innovation as we, as it evolves at the speed of evolution here. And, as the market response. So Brian's company was established what a year and a half
Brian Shniderman: (
Ago. Oh no, no. In the us, in the us we launched yeah, about a year and a half ago. That's pretty new 2013. Okay, in Australia, New Zealand and the UK,
Kate Fitzgerald: (
So pretty new. And then George talked about, split its being only six years old. Whereas in, the middle here, FIS is not new. And how do you fit into innovation? Are you parachuting into the middle of innovation here? How would you describe what you're gonna take a legacy company that already has a very deep kind of platform business and jump into this kind of modern leg, innovation.
Oliver Burns: (
We feel that the platforms and our payments business and our banking business create foundation and the circumstances for fintechs, for financial institutions, for merchants to do more. And so that's been really important to us, it's it's been important to us and our journey to build our, our capabilities such that you can more elegantly make these connections and provide choice. There's a lot of interesting things happening around, sometimes in the way I talk about it, I'll talk about by now pay later, I like talking about the future of credit, the future of finance is the way we look at it and there's, there's learnings that we can take away. If you look at what pics is doing in Brazil right now for a lot of y'all in the room, you've probably, when you think about installments, they've been for decades in Brazil and picks, which was started by the central bank is trying to innovate it and they're connecting financial institutions and fintechs together. If you look at what, a lot of y'all in the room also work for firms that are coming up with new ways to approach your consumer to approach businesses. And we want to be able to provide an environment for that platforms for that. we also want to ensure that, they're durable that they're responsible. I think that that's one of the questions that we also try to pay a lot of attention to is, and I'm sure that, George and Brian have thoughts on this. We pay close attention to what the CFPB is doing right now and what the FCAs doing right now. And there'll naturally be, and we've been in adjacent markets like crypto and we've been working with digital wallets and we feel that being on the front foot with that's quite important. And by now pay later is absolutely, one of those, one of those important examples and it's a strategic priority for us.
Kate Fitzgerald: (
Great. George, I actually wanna ask you a different question on how split it is managing the competition. Yeah. who are your competitors? I mean, you're tapping existing credit lines from traditional banks. And I guess I wanna get a sense of who you view as the potential partners versus the competitors.
George Danforth: (
Yeah, we really don't think in terms of competitors, because we tried to put ourself in, in a particular space in the B NPL ecosystem, if you will, we are, we don't wanna be a consumer brand. We don't wanna be a lender. What we wanna be is a tech stack enabler for the industry to power and make credit card BPL relevant at the point of sale. So for that to happen certain problems, there's a problem set that we have to solve for the problem for the merchant is that if you're a merchant and you're going to create an experience where a credit card holder is going to make a proactive choice at the point of sale, relative to their using their credit card for BPL, you need some things you need, first of all, you need it to be universal. You need it to work for all credit cards.
George Danforth: (
You need to work for all networks. Multi-network you need it to be omnichannel work across all the different channels. All that creates very difficult orchestration problems for a merchant or anyone who has to deal with all those different flows, data elements, and processes. We perform that orchestration for the merchant. We simplify it for them so that what they get delivered is a single point API that or that provides them all of the pre orchestration across all the different networks, across all the different channels, single point API with a white label solution for them, so it's easy relatively easy much more simpler to implement, integrate, and support. And with that in place, then we have an engine for credit card BPL to scale, to scale for everyone, including the credit card issues.
Kate Fitzgerald: (
So as we talk about the evolution of this innovation, have we already, do we already have the, is the model already established or do you feel like the model is in and innovation is happening as we speak Brian you're, you're still relatively new in this journey with this company. What's talk about the innovation that you've seen from just since you launched and how that's affecting your, your, your operations.
Brian Shniderman: (
Yeah. I think probably one of the most interesting things that's evolving is I mentioned the cost of these products, you know, the pay and that offer 0% oftentimes come at a very high cost for the merchant, right? And a lot of merchants are not wanting to pay that amount. Now these pay these B NPLS in general, most, if not all of them, they drive more, spend more frequently, a larger purchase and upgrade to a better item. And so it does a lot of good things for the merchants, but the cost can be very, very high if it's zero for the consumer. But the other thing that we're seeing getting innovated, which I'm really happy to see is moving away from the tricks, the traps and the gimmicks that come with a 0% teaser. So you pay it off in six months, great, no interest, but then if you don't pay it off in six months, if you're a day later, a dollar short, it actually can kick up.
Brian Shniderman: (
And the traditional lenders do this too, 27, 30 6% APR. Those are real numbers and very common while the innovations that I'm talking about, for example, with a closed end loan, now you can get something out there that's a single digit APR. And in our case, a flat feat, which never changes, which is great. So I think suddenly it starts to make the model much more accessible to a lot of people because you've eliminated a lot of the price and a lot of the gimmicks that have, really constrained buy now pay later today. Okay.
Kate Fitzgerald: (
So have you had any surprises though, since you launched in terms of new competitors coming along, people, undercuting what you're doing?
Brian Shniderman: (
No, no. One's undercut what we're doing. It's, we run a pretty tight chip to hit these numbers. The biggest surprise, and maybe it shouldn't have been is healthcare. Our big four verticals are home improvement, auto service and repair education and healthcare that demand in healthcare for a larger ticket, longer term B NPL has gone through the roof. And we've actually had to put some of our other activities on hold just to meet the demands, dentistry, hospitals, just a huge demand. I never expected that.
Kate Fitzgerald: (
That's, I don't remember you mentioning at the beginning when we first, when you first launched. Yeah. So over to Oliver, innovation and, where we are last week visa announced the, they've added by now pay later to the visa ready platform. Right. And MasterCard had done something similar sooner, or your partners with one or
Oliver Burns: (
Both with both.
Kate Fitzgerald: (
Yes, yes. This is, this is something that's happening as we speak, how big of a change is it gonna be? How, how far behind are some banks in terms of trying to figure out how do we get, how do we come get to be part of this movement?
Oliver Burns: (
Yeah, it it's, it's a great question. I think if you look at what's happening in Australia right now I think it was last autumn CBA, Commonwealth bank of Australia and Westpac both announced that they were gonna do interest fee free no late payment purchasing for their consumers. So, you look at two of the four biggest financial institutions in Australia. They're trying to figure out what do we do with what really grew up in Australia? When, when we look at visa MasterCard, our business will have in our merchant business this year will probably, handle a little bit over 2 trillion in volume for our customers in a variety of markets around the world, a variety of industries. And, I think what we, go back to is choice at the point of interaction, which I talked about earlier, and we feel that competition is a really healthy thing.
Oliver Burns: (
It's a good thing, as long as it's done in a way where again, responsible and durable, when we look at the work that visas MasterCard is doing, right now we're excited about it, they have financial institutions that issue their brands of all shapes, forms and sizes, around the world. And I know those financial institutions are very keen to protect their customer relationship and the value of those customer relationships. I also think that they're learning a lot right now. I think, they're learning and the buy now pay later use case, the way even generations when Wayne was talking a few minutes ago about, the rise in the fluency and the power of the millennial the power of the gen Z, that's coming soon. the way my daughter who's 23 now thinks about purchasing. neobank by now pay later, digital wallet, that's the way she thinks about things. And so for us, having, strong, healthy relationships with the payment brands, with the networks around the world, having vibrant relationships with, by now pay later firms that are solving real problems and easing integration and easing access. Those are, those are quite important to us because, the way we may have customers on the high street, look at things in the UK is different from Japan, is different from Australia, is different from other markets around the world. And, we want to be in a position where we support that. And I think one of the things that you also pointed out earlier is the innovation is not just the technology. it's also the business model, it's the financial models, it's the commercial models. And so that's something where we're trying to spend a lot of time, too, not just, the roadmap for the tech.
Brian Shniderman: (
Well, back to something else Wayne was saying, I just wanna say is really interesting. What we see across our 1.6 million active accounts today, average age is closer to 40 years old, where the B NPL that we've seen here in the us in particular has been some, you know, in their twenties buying t-shirts and tennis shoes or financing them right now. We're seeing it by, you know, parents with a couple kids on average age, 40 years old.
Kate Fitzgerald: (
Very interesting. I think you're talking about there's this there's a huge segmentation. You're targeting a more affluent, perhaps older borrower, we're still seeing a huge, explosive, explosive growth in the, in the, paying for, and then split its working with, I mean, how would you characterize split its, the maturity of the users? Where are they coming in in terms of our stems
George Danforth: (
Older, higher ticket, a lot of a, high AOV, but you know, going back to the subject, I think what we saw just now was the first wave of B NPL, right? They, the firms that are out there did a wonderful job approving out this marketplace and they did it in a way that it was doable through pay buttons. I think we're gonna be moving into a second wave of BPL. I mean, right now the state of BML is, I mean, BPLs are challenged, they're challenged in their business models, there are regulatory pressures there's, you know, as high as 400 basis points, that has to be written off, there's cost of capital and who is better at all this than the credit card issuers credit card issuers already have pre underwritten consumers credit card holders, some $3 trillion and untapped open to buy.
George Danforth: (
And, you know, we see, we don't see 400 basis points of of loss. We three closer to three to four base basis points. So I think that there's a tremendous untapped BPL market out there of credit card holders. We know that about 70% of consumers say that they would prof they would be more interested in a bank backed BPL product, where they already have a trust relationship. So if we can put all this together, I think that the next wave of BPL will be credit card issuers, presenting, pushing plans up to their customers real time within the consumer experience. And that's really the infrastructure that I think will take by now pay later to the next level going forward
Kate Fitzgerald: (
Really well put, I wanna, open it up to questions. I think we probably have some questions and I wanna make sure we get to those because we have a few more questions, we can ask these guys anybody questions about what maybe banks or are, should be doing or could be doing to position themselves for this next wave. And if no, one's gonna ask that question. I'm gonna put it right back to you guys. Brian, what of the rank and file of banks? You've got community banks, credit unions and big banks, what could they, or should they be doing or have they already missed some opportunities?
Brian Shniderman: (
Well, it's interesting, we as I said, we're a wholesaler. So we go through the banks, we distribute through American express for example. And, I think the important thing to understand for a bank is if you get this right, the value proposition is really strong on the merchant acquiring and services side of the house. So if you can demonstrate where you're helping a merchant solve something through smart installments, right? Regulatory, I mean, we are fully tele compliant. We're a full regulated product. That combination can really help a by now pay later. if you're a separate FinTech by now pay later independent like us, you can really have a great relationship with the traditional excuse me, financial institutions, for sure. I think there is a lot, a lot to be said. I agree with George, although I don't think it's just on the issuing side, I think it's a lot on the acquiring side is solving for things for the merchants, like the hospitals I was talking about.
Kate Fitzgerald: (
Great. Huge. And as you suggested, we may be at the very, very tip of what will ultimately emerge as your, Think so as it evolves because some of that was a surprise to you. Yep, Oliver, what, tell us about what banks could be, should be doing or what they might have already missed.
Oliver Burns: (
Something we're quite excited about is the idea. Obviously there, there are a lot of tier one financial institutions that have very sophisticated issuing businesses and consumer businesses. We're very excited about the potential and the promise for tier two and tier three smaller financial institutions. So you talked about community banks, you talked, about regional banks and the idea of them being able to reach different consumers, new consumers through by now pay later. So we're looking at our technology stack, for example, in our banking groups. So I've spoken quite a bit about our merchant business, our world pay business. But if you look at our banking business, how can we create our platforms such that those financial institutions can reach new consumers at the point of interaction where they may have not reached them before, but they have balance sheet available to do so. And, I think George, what you were talking about on the cost of money and, what if you look at the value chain and who's really good at what things for us, we're really excited about that. And so I would say for smaller financial institutions, so you don't, I don't think you have to be a trillionaire asset, financial institution to have success in this. I think you need to look at different ways to go to market. And, I think that that's something to me that has a lot of upside
Kate Fitzgerald: (
And we're still to early stages of it. No.
Oliver Burns: (
We are. So we're, we're actively working on our technology
Kate Fitzgerald: (
Support. It's not too late for any bank to start exploring their opportunities.
Oliver Burns: (
I think you have to. Okay. Yeah. I, and that would be our house view is, start now, because even when you look at the, some of the companies we've talked about over the last 30 minutes, that are some of the best known brands and payments, historically, they're iterating as we speak. And so I think you can get, you can get into that now, and it's not too late.
Kate Fitzgerald: (
And, George, you wanna add anything at the end, are there on the on the idea of where banks should be moving?
George Danforth: (
I mean, they do need to be working this space because it has a lot to do with their consumer relationships. And if they're directly, if you're directly a credit card issuer a number of credit card issuers are looked at pre and post purchase plans. And, those have had fairly modest success. The real moment of truth in BPL is within the consumer experience, cuz that's when people are making choices, you don't go out and think I wanna buy now pay later, you wanna buy a high end bicycle and you're looking at the bike and you say, oh, the $1,200 one, but I can make, I can make six payments of 200. And so you choose the bike at, you, choose it in conjunction with the purchase within the experience. So I think if I was a credit card issuers, I'd be working with my brand relative to their programs, vis and MasterCard installments to help I'd be working that help navigate.
Kate Fitzgerald: (
Yeah,
George Danforth: (
Start
Kate Fitzgerald: (
Think we wrap it up. I think we can conclude that. First of all, we've seen even we're talking innovation just in two years, look what's happened, last week a firm admitted that you talked about bikes, a big firm boomed because of Peloton and now pelotons going this way, this all happened in less than two years. Yeah. So in terms of innovation, staying prepared for early stages of a new way of thinking about borrowing buying, but yet it's, it's not too late for banks to establish, even as, as we speak that major partners are just now bringing out some of their, their on ramps right. For, for participation. So I think that will wrap up, you have a question. Can we get a microphone over there? She's right behind you.
Audience Member: (
How's It going? Brian, you had mentioned earlier talking about how kind of like the bait and switch from the 0% to a 4% or 36% later on. Isn't good for customers. Do you think B NPL, wherever go back to the, notorious pre-computed, interest model?
Brian Shniderman: (
Well, let me throw out a really interesting finding that we've see, when you offer, any kind of loan, it's approximately one in four to one in five people will eventually miss a payment at some 0.1 in four to one in five. And that's when the tricks, the traps and the gimmicks kick in where you go from zero to 27 or 36. I believe that the CFP personally, just me personally, I believe the CFPB is gonna catch up to that. I think they're gonna say walks like a duck quacks, like a duck. It's a duck, and they'll regulate these guys. And a lot of them won't survive or the banks will take them over and show them how to, you know, do the same thing, compliantly. but unfortunately what we see right now is the way that a creditor was defined in the regulations goes back to the definition of a creditor. Four installments are less, is not alone so it's not regulated as a loan. I think that's all gonna change for
Kate Fitzgerald: (
The better on that note. We are out of time, but this we're gonna be touching on these subjects a little more often and I hope you catch up with these guys. They are experts. Thanks very much.
Brian Shniderman: (
Thanks.