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Consumer Financing: Banks must innovate or get left behind by FinTechs

Different international lending platforms developed in the financial sector during the past few years, surpassing traditional banks in terms of inventive progress. Their Buy Now Pay Later (BNPL) services drew a lot of clients and increased the growth of Fintech companies. The innovations were comfortable, simple, and fast, with which they could provide services through various internet stores at the point of sale. The development of BNPL services allowed customers to buy any product online, receive payment just at the time of purchase, and pay the balance over time using a convenient payment plan.

It would appear that banks will struggle as new Fintech services take the financial world by storm. Existing banks will have to discover methods to develop appropriate innovations more quickly or collaborate with businesses that will do it for them if clients come to expect the same amount of flexibility and creativity from them as from Fintech firms.

Some think that the time for banking institutions is running out. Due to the enormous potential to provide cloud-based services, Tech companies, which compete with the biggest global banks in terms of spending power and market capitalization, have the finance industry fully in their sights. Smaller Fintech firms, in contrast, have quick and inexpensive access to these more recent cloud-based technologies, and they are creating cutting-edge, greatest solutions that meet a number of the problem areas that traditional banks find expensive to address and cause friction in the user’s online experience.

How did Fintech Overtake?

Since the inception of various BNPL systems, the statistics show that consumer financing has grown immensely popular with consumers, particularly younger generations. The ease and speed with which customers could obtain the necessary finances were the main factors. The consumer market was constantly expanding as a result of financial situational adjustments, particularly in recent years when the COVID pandemic served as a push for customers to use the online shop now pay later options. During those years, client perspectives and how people view lending and consumer finance were altered. Particularly when BNPL platforms offered significantly better terms to customers and the most convenient POS financing was already deployed on the majority of e-commerce websites, drawing a large audience, which made other traditional financial institutions lose the customer base they had.

The availability of BNPL services was another factor. Although some customers were not qualified for bank credit cards or loans, they were still welcome to use the shop now pay later options offered by other financing sites. Clients were returning to the platform, especially when they had a positive experience with the Fintech business they had previously used. This caused banks to lose their consumer base, and the majority of their former customers are now using BNPL and other consumer finance options.

Huge Role of Financing Platforms

Naturally, not all funding platforms and startups had compelling, original concepts, so top businesses had to come up with clever strategies to draw customers. One of the earliest financing platforms, ChargeAfter, installed the best and most reliable lenders on the platform, attracting users to the system. Additionally, Waterfall Financing’s implementation offers customers the quickest experience to match the buyer with the most appropriate lender accessible, guaranteeing that the buyer will become a reoccurring customer in the future. Innovative finance tools like ChargeAfter developed concepts that pleased all three parties: Retailers with more sales and returning customers, buyers with the best options to finance their needs, and lenders with more relevant customers.

Can Banks Make a Comeback?

Consumer financing and Buy Now Pay Later services are provided by Fintech companies, which are growing in popularity and have a much greater potential to attract customers in the future than traditional financial institutions do. However, banks have a wealth of knowledge and data at their disposal, giving them the chance to regain the lead and triumph in the battle of ideas with Fintech consumer finance businesses. Although BNPL systems are currently highly well-liked by consumers and have smartly adapted to new regulations, banks still have a huge opportunity to bridge the gap and develop superior fresh ideas to grow their customer base once more.

Because of the numerous startups, clever ideas, and market shifts that have altered customer behavior, banks can no longer afford to be inactive. To compete with their rivals in consumer financing, banks must quickly adapt to the cutting-edge technology used by Fintech and quicken the digitization process. This is necessary due to the rapidity with which BNPL firms are growing.

Strategic partnership management is a crucial component of the answer. With so many cutting-edge connector financial features available on the market through digital, cloud-based financial services, there is a huge opportunity to supplement and eventually replace legacy network infrastructure with cutting-edge consumer experiences. This cooperative strategy for capability integration has previously been successfully tested and is quite affordable.

There are other possibilities; working with fresh Fintech firms might greatly benefit banks. The most powerful banks in the US invested $3.6 billion in several startups. The financial institutions that wish to grow once again and compete with other consumer financing platforms take efforts to finance new startups or come up with fresh, inventive concepts that will enable them to eventually become a part of the vast system that is BNPL. Another illustration of how banks are lending to financing platforms is the recent expansion of the collaboration between ChargeAfer, a top financing platform, and Fortiva Retail Credit, a consumer credit program offered by The Bank of Missouri.

This is another way that banks can continue to participate in consumer lending, by serving as the lender for financing platforms like ChargeAfter, banks can attract a large number of new customers who are prepared to borrow money for their needs and make payments according to a pre-arranged payment plan.

The Future of Financing

Despite the regulations they have had to contend with recently, BNPL consumer financing is still evolving, and it is most likely anticipated that system investment will rise over time. What will be the difference and how can the demand for bank services change on the market if traditional banks can catch up with Fintech firms by that time?

In order to the question, we should consider some of the differences between them. For instance, as we mentioned earlier, consumer lending platforms globally can provide customers with a quicker application and funding process. However, we can also say that banks will be able to provide the same service in the future if they adopt innovative methods.

It is also well known that using a Buy Now Pay Later approach and obtaining finance through consumer lending websites is significantly simpler than doing it through banks. Simply said, you have a lot more of a possibility of receiving money from consumer loan companies. However, there is a different query: How advantageous is that to the buyer?

Perhaps at a time of necessity, the buyer is content to accept any loan, but, all debts must be paid back. Traditional banks give more consideration to a client’s work status and credit score before extending credit to them. As a result, if a person is unemployed and has a bad credit score, the banks will not lend them the money. But what will Fintech do?

Simply put, why would any business give money to a customer if they were unsure that the customer would have the means to return it? We can see that traditional banks and Fintech firms take quite different approaches to consumer financing. Therefore, by embracing Fintech, traditional financial institutions can make the market much safer for their customers, which is fantastic for the next generation because they won’t be saddled with multiple debts that may be impossible to pay off in the future.

Finally, we can state that even if Fintech firms currently dominate the market, this doesn’t mean that banks don’t have the capacity to expand, on the contrary, established banks have enormous potential to become industry leaders in consumer financing. Big traditional banks are still powerful institutions with a lot of industry knowledge and a lot of devoted customers. In the future, they will apply new innovative ideas and fight with Fintech businesses side by side. By working with Fintech startups, collaborating with experienced financing platforms, like ChargeAfter, or breaking into consumer financing systems, they can achieve this. Banks will need to innovate in both of these areas to keep up with Fintech firms.

About ChargeAfter

ChargeAfter is a leading multi-lender platform for Buy Now pay later (BNPL) Consumer Financing. It connects businesses with the most reliable lenders, enabling them to offer customers the greatest financing solutions. With the best system of Waterfall Financing, ChargeAfter guarantees BNPL lending to every shopper, by matching the most relevant lender to every client. Using the unique consumer financing technology, ChargeAfter provides all parties, merchants, lenders, and consumers, with the best shopping experience. Phoenix, MUFG, VISA, Bradesco, BBVA, Synchrony, PICO Partners, CITI, Propel Venture Partners, Plug and Play, and other companies worldwide are among the investors of ChargeAfter.