BNPL's fusion with blockchain and cryptocurrency is paving the way for financial innovations

BNPL's fusion with blockchain and cryptocurrency is paving the way for financial innovations

BNPL's fusion with blockchain and cryptocurrency is paving the way for financial innovations

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With the onset of the pandemic, buy now pay later (BNPL) was embraced by consumers searching for more ways to budget and improve finances, making it mainstream. Moreover, the intersection of digital payments and the demographically-led shifts in spending patterns played their own part in elevating the shopping experience of the consumers during this phase, boosting this payment trend. Consequently, BNPL providers are also now integrating digital wallets and cryptocurrencies into their business models to attract more customers, injecting more convenience into the shopping experience. This will allow BNPL customers to use their crypto funds to pay off their installments. However, both the BNPL industry and cryptocurrencies need better regulations and supervision. It is believed that 2022 could be the year the authorities start to enforce stricter measures, bringing more clarity, consistency, and proper customer protection.

Pairing up BNPL with crypto and its future growth prospects

For the last few quarters, there have been anticipations that the BNPL industry had already reached an impasse amid worsening macroeconomic conditions. One of the top-tier players, Klarna, announced in May 2022 to shed its workforce since its valuation reached US$ 6 billion from US$45 billion a year ago. As a result, several industry players are trying to attract and up-sell customers, engaging in new partnerships with merchants, card providers, and other avenues. One such recent BNPL vertical is the integration of BNPL with crypto and blockchain, which is expected to see significant adoption among consumers.

Both crypto and BNPL share a common element; they are shifting consumers out of traditional channels and putting them in new financial relationships with non-traditional players. From this aspect, banks and credit unions are considered less viable, making room for new fintech firms with innovative ideas to flourish in a digital era.

The most important selling point of crypto is that it holds the potential to eventually replace traditional money. This reveals the growing demand for decentralized finance around the globe. Banking on this growing trend, even large financial industry players are running successful crypto card programs. For instance, a global digital payments provider, Visa, opined that customers made US$ 2.5 billion with its crypto-linked cards in its fiscal first quarter of 2022. Since the customers find value in accessing that liquidity to fund purchases and manage expenses seamlessly, these crypto-linked cards are expected to grow over the long run. Therefore, PayNXT360 expects these digital payments providers to lean into the crypto space for a significant period, witnessing growth in their businesses.

In the BNPL system, if the option of cryptocurrency is provided, it would be a perfect scenario for the younger generation. Since young people are mostly opting against credit card ownership and are more comfortable with digital currencies as payment methods; therefore, this new BNPL vertical might see strong adoption among the millennials and Gen Z.

The platform that integrates these two high-tech payment methods will have its conditions. For instance, a customer can opt for the BNPL method when purchasing from a retailer that offers the option of crypto payment. After the BNPL provider approves the payment, the customer has to make an initial down payment in crypto. The down payment usually amounts to around 25% of the total purchase. At the same time, the customer can repay the outstanding balance without any interest over a period using cryptocurrencies sent from the customer's crypto wallets.

On the other hand, there lies a reverse possibility where customers can buy cryptocurrencies using BNPL. Therefore, here customers must have a cryptocurrency wallet to store their virtual coins, such as Bitcoin or Ethereum; afterward, they can use conventional money to buy cryptocurrencies. The BNPL system would allow the customer to spread out the conventional money payment with several installments. Thus, BNPL providers need to provide the cryptocurrency trading service allowing customers to use only one platform for all their trading needs.

Since both BNPL and crypto are largely drawing from the same user base, more fintech players have started to aggressively integrate ways to pair BNPL solutions with crypto payments. Furthermore, BNPL technologies with crypto applications will slowly open up interesting avenues for diversification in a rapidly maturing market. Therefore, PayNXT360 expects this new wave will attract more BNPL players to enter the crypto space, accelerating such crypto-BNPL fusion projects over the long run.

Competitive Landscape

Key BNPL players are entering the crypto space either standalone or through partnerships to attract more customers

With the growing interest in crypto among the customers, the leading BNPL providers are approaching this space to gain market share. For instance,

  • In February 2021, Klarna, one of the key players in the BNPL space, entered into a partnership with Sweden's leading broker for cryptocurrencies, Safello, to provide brokerage access to thousands of banks in the European Union. This was done by merging Klarna Open Banking with Safello's platform for cryptocurrency trading. Using Klarna's open banking infrastructure, customers can buy digital assets directly from Safello through Klarna's payment system.
  • Since the system has been developed over more than 15 years, providing access to a significant number of banks in 18 countries across the continent, this new partnership is expected to attract a substantial number of European customers over the next four to six quarters in the country.
  • In July 2021, Australian-based BNPL firm Zip Co Ltd. also intended to enter the crypto space to power growth. Since customers have been requesting this newly added feature, the firm is plotting new offerings in its business model to attract customers.

Fintech players are developing products integrating BNPL with Blockchain Technology and Crypto

In a fast-growing blockchain ecosystem, fintech players are launching Defi BNPL products bridging the gap between traditional and decentralized finance by ensuring buying power for consumers irrespective of their status. For instance,

  • In November 2021, AtPay (@Pay) pioneered the new concept of merging Defi to the BNPL realm, thereby allowing consumers of both online and offline stores to access numerous payment methods at lower fees. Importantly, here the customers can use specific cryptocurrencies while paying from the platform's native wallet.
  • The platform designed the BNPL structure where the credit limit starts at $250, and users can make direct purchases from e-commerce stores and repay the credit within three months without any interest.
  • Moreover, users who repay their BNPL credit loans fast get @Pay tokens as rewards, which can be used as payment on partner merchant websites. 

PayNXT360 expects this innovative platform to attract significant customers since this product comes right when blockchain technology and cryptocurrencies get the customers' attention and, importantly, when a large percentage of people are seemingly interested in crypto technology.

Therefore, it can be concluded that these crypto-BNPL fusion projects should be multi-faceted and not limited to crypto payments only. For instance, recently, BNPL provider, Affirm announced that it would be adding crypto trading as a new app feature to attract crypto-savvy users of the same demographic who are yet users of this deferred payment. This strategy would further help the providers expand their business, generating revenue over the next four to six quarters.

Since cryptocurrency and blockchain technology provides an opportunity for the BNPL players to retain the existing and attract new tech-savvy customers, the evolution of cryptocurrency as a form of payment will further enable these players to see growth in business over the long run.

To know more and gain a deeper understanding of the global BNPL industry, click here.

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