Banks are responding forcefully to the fintech-induced buy now / pay later craze, leading consumers to ask these startups: what else can you do for me?

Installment loans are, by their nature, intended for a single purchase. Banks are well equipped to turn this interaction into a long-term relationship by selling products such as credit cards to consumers or capital to merchants; fintechs, however, have some catching up to do.

“Our consumers and merchants expect more from us,” said Vakul Talwar, senior product manager at Afterpay in Melbourne. “Consumers are going to want all kinds of different use cases. “

Afterpay, which is in the process of being acquired by Block (Square’s parent company), has introduced several new products over the past two months to meet consumer needs. The BNPL market is expected to grow from $ 5 billion in 2020 to $ 20 billion over the next six years, according to Grandview Search, and Afterpay is one of BNPL’s many lenders fighting bank encroachment.

Credit card issuers such as Synchrony Financial, Capital One Financial, US Bancorp and JPMorgan Chase in September all launched plans to test short-term BNPL loans. By their nature, these banks bring more to the table than any BNPL fintech.

“One of the main problems with BNPL lenders is that they tend to be one-trick ponies,” said Brian Riley, director of credit counseling for Mercator Advisory Group in Tampa, Florida. “They do a good job of aligning with merchants, but don’t take full advantage of the potential of the customer relationship.”

Among Afterpay’s rivals, Klarna in November announced plans to launch a payment card and in October signed an agreement to supply BNPL Stripe merchants. PayPal announced in September the $ 2.7 billion acquisition of Japanese company BNPL Paying with the aim of expanding into the installment payment market in Japan. And Affirm signed a partnership agreement with Amazon provide BNPL to Amazon sellers.

“Most of the major fintech providers BNPL have expanded their offering in 2021,” said Ginger Schmeltzer, strategic advisor for Aite-Noveraica’s retail banking and payments practice in Decatur, Georgia.

Common added values ​​include debit cards, incentive marketing, and returns management. “And most of the big players have a range of installment offerings beyond ‘Pay in 4’ to provide flexibility to merchants and consumers across a range of ticket sizes and creditworthiness,” Schmeltzer said.

As traditional financial institutions sue BNPL, the product has become more expensive for lenders. Klarna, for example, reported in late November a pre-tax loss of $ 344 million from January to September, a 400% increase from 2020, a loss the company attributed to administrative costs related to loan growth. Klarna entered nine new markets over the past year.

In an email, Klarna’s public relations office said the company’s recent publications also included price drop notifications covering 250,000 traders. And more than 2.1 million U.S. consumers have used Klarna’s incentive marketing program, Vibe, since its launch in September 2020.

Additional economic pressure comes as the BNPL space continues to become increasingly congested even as consolidation continues across the space, Schmeltzer said.

“What these companies want and need more than anything is consumer retention, and they continue to add features to attract new consumers and make their service as loyal as possible,” said Schmeltzer. The apps “are designed to keep users coming back to the app, following Amazon’s playbook and going one-stop,” she said.

Because Square announced a deal to acquire Melbourne-based Afterpay for $ 29 billion on August 1. Afterpay has launched several products, some of which are not directly related to BNPL but rather are an attempt to build a merchant service business that can compete with traditional acquiring merchants.

Most recently, on December 7, Afterpay partnered with shopping and rewards company Rakuten to combine incentive marketing programs and cashback offers with BNPL, covering retailers such as MAC Cosmetics, Crocs, Ulta Beauty, Urban Outfitters, Anthropologie, Free People, Ugg and Ray. -To forbid.

On November 24, Afterpay launched a subscription service that allows consumers to split recurring payments into smaller installments. A $ 200 subscription quarter, for example, would be split into four $ 50 installments over three months. The credit check for subscriptions is the same as the basic installment payment option from Afterpay.

“There are other use cases among merchants for BNPL, like pre-orders or subscriptions, that we would like to use to create a network effect for our payment services,” said Talwar. “We are trying to create ubiquity for our service.”

On August 19, Afterpay was launched IQ post-payment, an analytics platform that provides purchase and payment data such as the performance of marketing campaigns and demographic summaries in individual stores. The platform further offers recommendations for future sales or marketing campaigns based on analytics.

“We want to give retailers more information, by answering questions like What does this Afterpay consumer do when they’re on the merchant site? Said Talwar.

The following week, the company announced Post-payment announcements, which allows brands to serve featured ads on the Afterpay app. Customers can amplify promotions, products and merchant offers on a pay-for-performance model.

“Advertising is the next level,” said Talwar. “We will give retailers the ability to personalize their experience on the Afterpay network, through things like personalized advertising. We may also consider advertisements for major shopping periods such as holidays, where merchants can personalize the advertisements for specific consumers. “

Afterpay is planning further product rollouts pending the completion of the Square deal, which is slated for early 2022. For Square, Afterpay is expected to add the third largest BNPL lender, after PayPal and Affirm, according to Arizent, publisher of American Banker.

Square did not respond to a request for comment. Afterpay’s BNPL service and the new products it launched in the past five months can increase Square’s merchant and consumer products, including point-of-sale credit, the Cash app, and Bitcoin support, said Talwar. “Square has the seller side and the Cash App side,” said Talwar. “We see ourselves as the connective tissue between the merchant and the consumer products.”

There will be additional product development after the Square deal closes, Talwar said. “With Square, there is a lot to build and bring new products faster,” he said.