Banks in Latin America are looking to leverage their technical and data management capacity to promote buy now, pay later (BNPL) products and ensure they aren’t left behind in the rush to this fast-growing market. However, integration with retailers—a fundamental step to approve credit at the time of purchase— poses a challenge.
Officials from BCP in Peru and Banco Galicia in Argentina agree that effective interaction between financial institutions, retailers and end customers is critical to success in this type of lending and requires agile, robust technological integration. For the consumer, this translates into a swift credit approval at the point of sale, without the need for credit cards—a defining characteristic of BNPL.
“There are two things that we consider key: one, having the necessary technology to ensure the connection of merchants can be friendly, fast and simple; and second, becoming partners with the merchants to bring them traffic that translates into incremental sales,” Jorge Jenkis, new business development manager at BCP, tells iupana.
The bank, which is part of Peru’s largest financial group, Credicorp, offers a BNPL product called Cuotéalo.
According to estimates by Americas Market Intelligence, BNPL transactions could come to represent 20% of the region’s e-commerce. That makes it a market segment that banks can ill afford to ignore.
“We see cases where 10% or even more of a store’s sales are financed with Cuotéalo. For us, one of the most important KPIs (key success indicators) is how much we generate for the merchant,” says Jenkis.
However, the executive acknowledges that there is still a long way to go in terms of technology.
“The main selling point, and the one we are working hardest on, is that technological integration can be simple, easy and standard for merchants.”
Fintechs have played a leading role in pushing BNPL in the region. Companies such as Kueski in Mexico and Sezzle in Brazil are attracting users (most of whom lack a credit card or credit history) and charging merchants a fee for each approved purchase. It’s a promising product for a region such as Latin America where lending is comparatively low.
Banks, meanwhile, have been more timid in their exploration of this market, instead leaning more towards the offer of “interest-free” installments backed by a credit card, such as in the case of BBVA in Mexico and Interbank in Peru.
On September 6, we will discuss the BNPL business models in Latin America, and how to address the risks in this credit product, with the help of leaders in the region. Participate in our event by registering here.
BNPL: Refining the Credit Risk Model
However, at the end of July, Banco Galicia began a pilot phase of its BNPL product, Cuotas sin Tarjetas.
“We seek to create a synergy with the group’s microcredit strategy and the financial inclusion of people who may not have access to traditional credit, and by collaborating with businesses to boost their sales,” says Ignacio Costa, retail leader of Grupo Financiero Galicia, the bank’s parent.
Under the bank’s model, it charges the business a commission for segmenting the interest-free payment. Customers receive a notification from the merchant and, upon accepting the conditions, the money is credited to the merchant’s account.
The product is “an excellent input for building credit history. This is interesting for people who are not regular users of the financing options available in the market,” adds Costa.
The recent drop in the valuation of Swedish fintech Klarna, global leader of the BNPL model, hurt the product’s reputation as investors reevaluated its profitability and sustainability at a time of economic slowdown, and even questioned whether it’s an instrument that leads to over-indebtedness.
Jenkis says that unlike other models, Cuotéalo earns revenue by charging end users interest, although that could change as the product matures, he says. This differentiates the bank from fintechs, where sustainability depends on two fees “the merchant fee and a late payment fee—and that’s what you have to live with.”
He also says that, unlike its fintech rivals, BCP seeks to protect its BNPL portfolio from the risk of default by leveraging client data. “As a bank, we have a lot of transactional information on customers and that is very useful in order to pre-approve an offer,” he says.
For that reason, Cuotéalo is currently only available to BCP customers, at least for now. “The more distant the client is, and the less information we have about them, the more difficult it is,” he acknowledges.
BCP launched the product in 2019 and has pre-approved 3 million customerS using data collected by various group companies, such as its digital wallet Yape. That exceeds the number of credit cards issued by the bank, which is around 1.3 million.
“If you don’t know how to manage risk in this model, you’re dead,” he says.