The Deloitte and

Mambu guide to

Buy Now,
Pay Later

How BNPL can unlock growth

for banks and retailers

Mambu.com Deloitte.com
Executive Summary

Buy now, pay later (BNPL) is finance for the digital age. It’s
fast, convenient, and democratic, offering multiple benefits for
merchants - as a revenue booster - and for consumers - to help
them distribute spending and make purchases more affordable.

It has also challenged traditional point of It provides expert insight on what it takes to
sale financing business models such as launch a BNPL proposition including:
credit cards, putting power in the hands of
• Key indicators of attractive BNPL
consumers and making fast, frictionless,
markets
low/no-cost finance, more widely available
to a broader – and younger – audience. • The BNPL business case for banks and
retailers
Fintechs have been the first-movers
championing BNPL. However, COVID, the • The four different BNPL business models
e-commerce boom, and economic pressure and their strategic implications
have turned BNPL into a growth engine
for e-commerce businesses and lenders. • Five key design principles that optimise
Both banks and retailers are now looking success
to explore options to bring their own BNPL
Importantly, it also provides a step-by-step
offerings to market.
action plan that outlines the processes, tech,
This report explores the various BNPL and skills needed to build and roll out a
business models and unit economics, the successful BNPL proposition. This makes it
opportunities and threats for incumbent the ideal guide for banks and retailers seeking
banks and retailers, and how they can to ride the BNPL wave and get in front.
pursue their own offerings to realise growth
ambitions.

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 2
Introduction: Buy now, pay later (BNPL) has
disrupted the purchase finance market

What is BNPL? BNPL usage has surged

BNPL is a short-term financing option which
through the pandemic
allows customers to purchase products and
The pandemic has accelerated the migration
pay for them in the future - at zero or low
of buyers online, creating a boom in
interest. Repayment schedules depend on
e-commerce in both mature and developing
the terms offered by the BNPL provider, but
markets. Today’s customers are demanding
typically include payment in full by the end
more connected experiences and greater
of month, pay-in-3 (three equal monthly
levels of convenience and personalisation.
payments) or pay-in-4 (four equal biweekly
This has created a major opportunity for
payments).
new digital payment options. Given its levels
of accessibility and affordability, BNPL has
emerged as a strong contender to traditional
lending and a threat to credit cards (see
figure 1 below).

Figure 1

Credit cards vs buy now pay later revenue in Australia

Number of credit cards Number of credit cards Buy now pay later revenue BNPL Revenue

17,000 $800

16,500 $700

$600
16,000
$500
15,500
$400
15,000
$300
14,500
$200
14,000 $100

13,500 $0
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
(Thousands) Millions $ AUD

Source: Ibisworld, RBA

Data to the end of May 2020

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 3
Three factors driving growth

01
Consumer demand for convenience and affordability
BNPL gives consumers a feeling of deferring payment (instead of
accessing credit) and the power to easily try-out a product with no financial
outlay at the time of purchase. Consumers choose BNPL over traditional
payment methods such as credit cards for simplicity (29% of users cite
ease of use as the main driver for using BNPL1), accessibility, and a feeling
of optionality and choice (56% of consumers cite the possibility to test a
product before making payment as a driver to use BNPL2).

BNPL adoption is growing steadily across Gen-Z, Millennials, and

Gen-X (see figure 2). The highest adoption rates are seen among
younger segments. Fashion, technology, and health and beauty are the
leading categories for BNPL purchases3, and the average ticket size is
approximately $100-$130.

Figure 2

US Buy Now, Pay Later User Penetration, by Generation, 2018-2025

% of digital buyers in each group

46.5% 47.3% 47.4%

44.1%
Gen Z
36.8%
40.6% 40.6% Millennials
39.5%
37.2%
Gen X
30.3% 30.9%
21.6% 28.7%
26.3% Baby boomers
23.1%

10.9% 18.0% 17.2%

14.8%
13.5%
9.2% 12.0%
9.7% 9.4%
1.7%
1.4% 4.5% 6.2%
0.6% 2.9%
0.1% 1.0%

2018 2019 2020 2021 2022 2023 2024 2025

Source: Insider Intelligence, Buy now, pay later users

1
Citizens Advice, Buy Now, Pain Later, 2021
2
Deloitte Survey of 1035 consumers in Poland, 2021
3
This is Money

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 4
02
Top-line growth and merchant adoption
Widespread merchant adoption is a key driving force of BNPL’s success.
Merchants typically experience growth through sales conversion and basket
size. Research shows increases of 30-50% in average order value (AOV) and
a 20-30% improvement in sales conversion4 when BNPL is offered.

03
Accelerated market traction
Worldpay data indicates that BNPL accounted for 2.9% of global
e-commerce in 2020 with highest adoption in mature markets. Market
share is expected to reach 5.3% by 20255. BNPL adoption has erupted in
mature markets including Sweden (25% penetration) where it is the leading
e-commerce payment method and Germany (20% penetration)6.

BNPL Gross Merchandise Values7

CAGR, 2022 2028
Market
2022-2028 (USD millions) (USD millions)

US 32.5% 82,087 443,781

Brazil 42.4% 4,162 34,674

France 27.3% 12,357 52,475

Germany 35.9% 60,424 380,628

Spain 24.9% 3,520 13,351

UK 24.5% 29,906 111,545

4
RBC Capital Markets, 2021 Outlook: Payments, processing and IT services, 2021
5
Worldpay, Global Payments Report, 2022
6
Worldpay, Global Payments Report, 2022
7
Research and Markets, Buy Now Pay Later Market Country Reports, 2021

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 5
Fintechs have been first-movers
but there is space for banks and
retailers too
BNPL-focused fintechs have gained early traction
in the market on various fronts including customer
uptake, merchant adoption, and valuations. Klarna8,
valued at $45 billion, is one of the market leaders and
now serves over 90 million customers across 250,000
merchants worldwide.

Yet despite growing market momentum, BNPL still

accounts for a relatively small proportion of global
e-commerce. Hence there is still substantial growth
potential for incumbent banks and retailers seeking to
accelerate growth with their own BNPL offerings.

Opportunity or threat? Building

the business case for BNPL
Given the consumer and merchant momentum
behind BNPL, banks and retailers are now exploring
the market’s attractiveness and looking closely at their
own role within the BNPL ecosystem.

8
Klarna website

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 6
Four favourable market indicators for launching
a BNPL proposition
When evaluating markets, the following factors
are signs of attractive BNPL market potential:

01 03
Low credit accessibility and A high proportion of young and
disrupted user experience engaged digital natives
Markets with poor access to instant credit A large and/or fast-growing population
alternatives and tedious administrative of digitally savvy young people with high
processes result in a disrupted user experience e-commerce engagement allows BNPL
and provide strong tailwinds for BNPL (since providers to reach early adopter segments
ease of use is a key adoption driver). and build rapid momentum.

02 04
Evolving regulation to include Elevated e-commerce and
BNPL market concentration
In most markets, short-term, low value, and Highly concentrated e-commerce markets
interest-free financial products fall outside favour BNPL offerings embedded into
existing credit regulations. This has made merchant ecosystems. Fragmented markets
it easy for new entrants to launch BNPL create opportunities for aggregator and
offerings. However, there is increasing merchant-agnostic (e.g., virtual card)
global pressure to protect consumers offerings where the BNPL provider becomes
from overspending and debt by extending the customer engagement interface.
regulation to cover BNPL. This may give
banks an advantage as they are more adept
in dealing with regulators and operating in a
regulated environment.

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 7
Implications for incumbent banks: Increasing regulation and
compressed margins provide an opportunity to strengthen
merchant relationships

As BNPL markets and BNPL-focused fintechs business line. For banks, BNPL can be a way
scale, banks could lose out by not acting. to improve their merchant relationships and
Research estimates that BNPL fintechs have value proposition, allowing them to capture
already diverted $8-10 billion of annual a greater share of wallet through cross-
revenue away from banks9. This need not be selling and customer acquisition.
the case since 70% of BNPL users would be
interested in using BNPL offerings from their Banks are well positioned against fintechs
banks – if they were available10. in a market facing more regulation, lower
margins, and potential market consolidation.
BNPL will continue to erode unsecured retail By adopting a startup mindset and
lending revenue, whether banks launch their assuming some level of risk, banks can
own BNPL offerings or not. Banks, therefore, leverage their existing compliant operating
need to view BNPL strategically and decide models, large individual and merchant
if and how they will play a role in this new customer bases, and lower funding costs to
succeed in this market.

9
IBS Intelligence, Why BNPL should be now, not later, for banks
10
Pymnts.com, Banking on buy now, pay later, 2022

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 8
Implications for retailers: Benefits outweigh the risks
Merchants that adopted BNPL early have Small and medium sized retailers should
reaped the benefits - 41% of consumers assess BNPL providers on three pillars:
are more likely to shop at stores which enabling superior customer experience,
offer BNPL11. UK fashion retailer, Hype, for moderate but non-prohibitive costs,
example, experienced a 40% increase in AOV and maintaining flexibility (for example,
and a 38% increase in online conversions switching BNPL providers).
after introducing Klarna to its store.
Larger merchants can use their operational
Given that BNPL’s adoption is still moderate, and geographic scale and high customer
it will continue to fuel merchant growth. engagement, data, and knowledge to build
However, as merchant acceptance grows, bespoke BNPL offerings with partners, or
the positive differentiation and AOV effects even on their own (for example, leveraging
will weaken, and merchants will need to on PSD2). Merchants opting to build their
closely monitor their margins. own BNPL propositions and keep customers
within their ecosystems will need to develop
Merchants should be aware of the BNPL
distinctive credit decision, fraud prevention,
risks including sales dependency, higher
and collections capabilities.
fees, and disintermediation of customer
relationships. They can mitigate against these Overall, there is a compelling business case
by strengthening customer engagement for BNPL given its benefits to customers,
through in-house loyalty programs, ensuring merchants, and lenders. While there is some
flexibility in choosing (and switching) BNPL degree of risk, in most cases, the potential
providers, and adjusting pricing strategy to upsides outweigh the drawbacks.
fund higher fees.

11
Deloitte Survey of 1035 consumers in Poland, 2021
12
Klarna, Hype case study

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 9
BNPL business models

What do incumbent banks and retailers need to know to launch

their own BNPL offering?
The first decision is choosing which business model to adopt. There are four options –
merchant only, embedded checkout, embedded aggregator and merchant agnostic.
The diagram below shows how these structures impact the key roles involved in BNPL
transactions: customer, merchant, and lender.

Structure Two-party Three-party

Model A. Merchant only B. Checkout C. Aggregator & A. Merchant

type checkout agnostic
By launching their Banks can leverage
own BNPL offerings, existing merchant Opportunity for The lender funds
merchants can relationships to prevent lenders to develop a customer acquisition
create new revenue wallet erosion from marketplace to acquire and provides a card
streams and reduce BNPL fintechs. and engage customers or QR code for use at
interchange fees. and drive traffic to multiple merchants.
Merchant and lender merchants Banks following this
However it requires both participate in model are more likely to
investment for customer acquisition cannibalise consumer
customer acquisition process banking revenues
and lending without monetising
operations merchant customers

Lender Large Incumbent banks, Fintechs, Incumbent Fintechs, Incumbent

retailers Fintechs banks banks

Payment BNPL payment BNPL payment BNPL payment button Card (virtual/debit/
method button at checkout button at checkout and BNPL-provider app credit) or QR code
or website to aggregate
merchants

Revenue  basket size and BNPL BNPL service fee and Interchange fee
driver sales conversion service fee affiliate marketing fee Customer interest

Regions China, Latin America Europe, US, Australia Europe, US, Australia Europe, US, Australia

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 10
How do BNPL and credit card business models differ?
Whichever approach is chosen, BNPL shifts the power balance from merchants to
consumers by turning the credit card model upside down. BNPL and credit cards fulfil
similar customer needs - spreading out payments. However, the underlying fundamentals
are quite different, see illustration below.

BNPL has advantages over traditional consumer finance models.

Personal loans and credit Buy now, pay later

Eligible Customers who comply with the credit Consumers, including those who do
decision criteria, assuming traditional not meet the approval requirements of
clients models of analysis and decision-making traditional credit but with potential for
approval for lending of lower amounts
and shorter terms

Nature of Premeditated and intentional decision, Decisions mostly impulsive and made
involves establishing contractual adhoc in the act of purchase. A one-off
transaction relationships for a credit product at a relationship is established exclusively
time different from the one when the for a specific transaction
purchase need arises

Average Highest purchase values are typically for 80 to 85% of transactions are of low
electronic and household appliances value, less than €100
order value

Journey Journey tends to be complex and Simple and fast journey, completed in ~3
time-consuming, requires compliance minutes during the first purchase and <1
simplicity with consumer credit regulations and minute in subsequent purchases
provision of supporting information

Pricing / Interest rate and commissions charged Commissions typically charged to the
to the consumer (interchange fee merchant (commission and interest rate
Revenues charged to merchant if applicable) charged to the consumer only in case of
non-compliance)

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 11
Although BNPL can lead to some potential cannibalization of unsecured retail lending
revenues, it also offers new opportunities such as monetising the merchant relationship
through increased transaction fees and cross-selling.

The example below shows that despite BNPL fees being 2-4x higher than typical credit
and debit card Merchant Discounts Rates (MDR), the economics still present a favourable
picture for BNPL. As long as the increase in AOV outweighs the increased service fee, it is a
compelling option for merchants.

Example: Economic impact of a €300 transaction - credit card vs BNPL

Credit Card BNPL

Basket Value (base €300 €390

basket of €300 with BNPL
increasing AOV by 30%)
Merchant fee 1,5% (interchange fee) 5% (BNPL fee)

Merchant’s €295,50 €370,50

net revenue
Customer’s No interest if paid by month end No interest or fees for on-time
financing cost but usually a monthly or annual repayment
maintenance fee

Benefits for BNPL lenders, beyond purchase financing

Incumbent banks who launch their own Merchants who launch their own BNPL can
BNPL can benefit by: benefit by:

• Strengthening, entrenching, and • Partnering with banking-as-a-service

monetising their existing merchant (BaaS) providers to offer financial
relationships products to their customers

• Attracting new merchant clients looking • Leveraging their customer data to

to introduce BNPL offerings improve their loyalty program’s value
proposition and provide better targeted
• Using BNPL data to create cross-sell
offers e.g. Mercado Libre14, the Latin
opportunities for additional products
American e-commerce leader, expanded
and value-added services e.g., fulfilment
from a pure e-commerce offering to
management tools (e.g., invoice issuing),
launch various financial services through
affiliate marketing, and analytics-as-
its MercadoPago subsidiary
a-service

• Attracting new retail banking customers,

at a lower acquisition cost, using BNPL
to build more attractive shopping
experiences e.g. Santander’s Zinia13
platform now has 2 million customers in
Germany
13
Santander website
14
Mercado Libre, Business Overview

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 12
Learnings for lender banks and retailers

Five key design principles for a successful BNPL offering

From BNPL market analysis and industry expert interviews, we have distilled five
important design principles for the BNPL customer journey:

01
Immediate credit risk decisioning and fraud
04
Differentiated value proposition
detection at point of application during compared to other BNPL suppliers in
onboarding and advanced collections an increasingly commoditized market.
strategy to contain non-performing loans Discounts (57%), loyalty points (56%), and
within acceptable risk levels exclusive benefits (40%) are among the
most attractive BNPL value adds15

02
Seamless customer experience 05
incorporating the various touch points Pro-active marketing and branding
between the end-customer, merchant, and between the end-customer, merchant, and
lender - avoiding UX siloes or disruptions lender to position BNPL as the payment
option of choice and increase AOV and
sales conversion e.g. using social media

03
and influencers to raise awareness of BNPL
and how it works, and promoting BNPL
further up the funnel not just at checkout.

Ease of integration and data sharing

between merchants and lenders throughout
the customer journey enabled by API-first
technology

15
Deloitte Survey of 400 consumers in Spain, 2021

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 13
First steps to building a BNPL offering
Meeting customer expectations for seamless experiences and real-time decisions are key
success factors in developing a compelling BNPL offering, but where and how do you start?

Five implementation priorities and actions

01
Value proposition: build a value proposition targeted to your customers’
pain points
• Define and understand needs (merchant and customer)

• Explore which offering (embedded, agnostic or both) best addresses

needs and challenges

• Test which specific payment options (e.g. pay-in-30 days, pay-in-3, etc.)
best fits or differentiates for your user segments

• Build a robust business model informed by unit economics and

sustainable growth

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 14
02
Technology and Data: next-generation technology enabling real-time
decisioning

• Leverage partners with next-gen solutions to launch customer-centric

offerings in 3-6 months

• Design the ideal architecture incorporating best-of-breed partners to

suit your operating model - Figure 3 shows the macro-components
per architecture layer (front end, core, and downstream) for embedded
offerings

• Determine which approach (build, buy, or partner) to adopt for each of

the required components

• Check which technology assets create a competitive advantage most

efficiently and with least disruption - and which technology partners can
best support product/business evolution

• Develop a strategy for data migration (if applicable), storage, and

management – including how to use data as a source of differentiation
through real-time decision making and analytical models for risk,
pricing, and sales propensity

Figure 3

Front-end: Components
that interact with the
Omnichannel platform for BNPL offering BNPL payment at checkout
end user and enable the
exchange of information
during decisioning
Account Credit Fraud detection (onboarding, payment
KYC AML options). This can occur
Origination Decisioning and management
in the lender or merchant
channel

Core Platform: records

SaaS Banking Engine and orchestrates the
flow of information
Product Subledger for Core Customer with customers and
Factory Financial Products Data downstream channels. It is
the ‘brain’ of the process,
so leveraging next-gen
Mambu Process Orchestrator solutions enables agility
and real-time decisioning
Process Orchestration Integration Middleware
Downstream: specialised
modules for non-customer
facing processes, usually
shared with other offerings
such as accounting,
Payment Processing Regulatory Reporting Accounting System Data Analytics payments processing, or
business intelligence (BI)

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 15
03
Risk and Compliance: a key differentiator where risk frameworks can
provide a competitive edge

• Design a legal and compliance framework to manage the offering

• Define the risk appetite, model, and strategy. Consider whether credit
risk will be assessed at an individual or portfolio level, if progressive
credit scoring by ticket size is required, and attitudes to holding debt on
balance sheet

• Develop a fraud detection and management strategy including pre-

purchase ability to assess fraud risk

• Define a collections management strategy (in-house or outsourced) that

fits the customer journey and allows prudent financial management

04
Skills and Capabilities: invest in specialised talent, in critical areas to
complement your teams

• Build brand and differentiate your offering with B2C digital marketing to
grow customer awareness, trust, and brand affinity, and B2B initiatives to
attract merchant customers and win buy-in on their websites

• Enhance commercial sales capability – include account managers for

large merchants and ready-to-go toolkits for smaller merchants

• Enable credit risk management – acquire, outsource or develop risk

teams and models

05
Go-to-market: bundle the offering within your portfolio and bring the
minimum viable product to life

• Define product bundling approach – incorporate BNPL with existing

and new products (e.g., lending and merchant acquiring) to create new
sources of revenue (such as affiliate marketing fees)

• Agree pricing strategy - retailers are predominantly interested in

increasing AOV and sales conversion; commercial banks need to
monetise the product as well as overall merchant relationships

• Design channel, customer acquisition, and engagement strategies for

B2B, B2C and B2B2C segments.

• Develop a release plan detailing target audience, incentive/benefit

schemes for minimum viable/marketable product and a scaling timeline

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 16
Win with Mambu
and Deloitte
Banks and retailers seeking to introduce BNPL offerings should
choose partners which give them a head-start by leveraging
their flexible technology solutions and domain expertise.
Mambu enables its customers to build BNPL solutions using Mambu’s core product engines
in combination with a composable framework for integrating best-for-purpose third-party
providers. Mambu provides its customers with the technology to allow their consumers to
have access to credit products quickly and seamlessly.

Deloitte as well as Mambu have supported multiple organisations to design, build, and
deliver BNPL offerings in a wide variety of markets.

Mambu supported the build and launch of ZestMoney, one of India’s fastest growing
consumer lenders, which has over 11 million customers. ZestMoney allows customers to
make purchases and pay over three or four months, interest free, and without a credit card.
Almost 90% of ZestMoney’s disbursals are made without any need for human interference.

Deloitte has supported several Banks, Retailers and other Financial entities in multiple
geographies in designing and implementing a BNPL business model including strategy
design, value proposition, target operating model, business case, and go-to-market approach.

Faced with growing BNPL customer demand, merchant adoption, and accelerating market
momentum, banks and retailers need to act now.

Authors

Ricardo Ribelles, Principal, Advisory Services Bernardo Ferrão, Associate Partner, Business Consulting
Tanur Madaree, Associate, Advisory Services Daniela Roldão, Senior Manager, Business Consulting
Miguel Amaro, Associate Partner, Technology Consulting

The Deloitte and Mambu guide to Buy Now, Pay Later (BNPL) 17
Contact Mambu
mambu.com or [email protected]

About Mambu Advisory

Our Advisory team brings Mambu’s unique knowledge from 200+ clients across 60+ countries, helping
our customers carve a path through complex customer, commercial and operational challenges.
Whether designing a proposition to access new customer segments or markets, defining digital
product roadmaps, identifying ways to improve product flexibility, creating a speedboat or simplifying
the business architecture, Mambu Advisory Team is here to help!

We serve our clients across three key services:

• Customer strategy - Designing new propositions, understanding untapped customer segments,

exploring unmet customer needs which can help create an unfair advantage in the market

• Commercial strategy - Developing growth engines to help achieve revenue (exploring new value
pools within existing customer base) and cost outcomes (simplifying business and/or technology
architecture to simplify legacy complexities

• Operational strategy - Defining strategic realignment to create a new way of doing business and
creating organisational muscle for innovation.

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