Buy now, pay later has emerged as one of the most transformative innovations in the payments industry in recent years. While no longer considered a new technology, financial institutions like Citi continue to find novel ways to integrate the tech into their offerings.
Citi has incorporated BNPL into its Citi Pay suite of services, launched last year. The bank offers BNPL loans to consumers through a network of partner merchants instead of relying on an in-house network.
“It’s so interesting to see how this business has come full circle,” said Don Apgar, Director of Merchant Payments at Javelin Strategy & Research. “When I ran sales and marketing for Citi Retail back in the 90’s, we were innovating on a retail model of department store charge cards that had been around since the 50’s.”
“The business had strong headwinds at that time, and our technology solutions couldn’t overcome the fact that retail credit was built on an old analog infrastructure and had very high fixed costs for the retailer with card production, statement generation, and more,” he said. “Going into the 21st century, consumers were flocking to general-purpose, co-branded affinity and rewards cards. Citi exited this business (as did GE Capital).”
Rich Data
Although Citi moved on from that line of business, retailers’ demand for credit services has remained strong. Offering credit to customers continues to be an effective strategy for driving engagement and boosting sales of products and services.
“Retail credit also delivers rich data on not just what was purchased, but information about the purchaser,” Apgar said. “In addition to targeted and personalized marketing, demographic data helps retailers position their brand in the market and informs advertising and marketing strategies that define the business for consumers.”
A New Breed
BNPL is changing the relationship between banks and major retailers by introducing new products and enhancing services. This shift is driven in part by changing customer preferences, as retail customers have higher expectations for digital payments and have access to more alternatives.
In comments to Tearsheet, Kartik Mani, Head of Retail Services at Citi, highlighted three things merchants want from their financial institution in order meet surging consumer demand: trust and consistency, a vision for emerging trends, and an ease of integration. Though Citi is not the first company to offer BNPL, it has the resources and positioning to bring the technology to the next level.
“Kudos to Citi for recognizing that the tech driving BNPL could be leveraged to deliver a new breed of digital-first retail credit programs for merchants,” Apgar said. “It can deliver the same benefits as old-fashioned store card programs without the high, fixed operating costs.”
“A quote from Mani says it all: ‘Pushing the envelope is not always about being the first to innovate. Often it is about seeing the innovation in the industry and then moving quickly and at scale to improve on the existing innovation,’” he said.