Original text here from Patrice Bernard (LinkedIn)
Less than two years after a launch full of promises, NatWest has announced the discontinuation of its Buy Now, Pay Later (BNPL) payment solution, citing low usage among its customers as the reason. Does this setback signal that banks are falling behind in this still booming market?
In the UK, about one-third of adults have used this kind of financial service, with the rate even reaching 40% among those under 35. The recent holiday period broke records with over 15 million users. Despite rising interest rates putting some providers under pressure—possibly explaining the delay in regulatory ambitions by authorities—the product remains a resounding success among consumers.
This growth, initially captured by disruptors like Klarna or AfterPay, has undoubtedly drawn the attention of traditional financial institutions, as evidenced by the recent entry of American Express. At first glance, NatWest's response seemed well-constructed, featuring a dedicated virtual card that automatically allocates all spending (up to a personalized cap of £1,000) to a free four-month repayment plan.
Indeed, credit card holders already had (and still have) a very flexible option to convert their commitments—either per individual purchase or total balance—into installment loans over 3 to 12 months. However, beyond targeting a specific audience, this carries a cost that places it in a significantly different, non-competitive category. Thus, its historical popularity is unlikely the primary reason for the failure of NatWest's in-house BNPL.
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So, how can we understand the British institution's rapid about-face? A first factor, overlooked, is the cost of the service. As pioneers who relied on merchant fees for their business model discovered, deferred payment effectively represents credit, the price of which has increased in recent months. Perhaps the discontinuation is simply due to a realization of an unsustainable financial balance.
As for the disappointing adoption level that NatWest excuses itself with, it can be interpreted in terms of customer experience. Compared to offers that merchants spontaneously promote with an optimal subscription journey, voluntarily enrolling in a program presented out of context is likely to be a deterrent, further hampered by imposed limitations (legitimately) for consumer protection, and the required actions during its implementation.
In summary, banks aiming to regain the upper hand against BNPL leaders will only succeed if they can offset their absence at the critical moment of the purchase opportunity with other significant advantages... and a viable economic formula. Unless they also make inroads with merchants, competing head-on, in which case they will need to demonstrate their ability to create a state-of-the-art user experience while finding their unique selling points.
