The possibility of paying in instalments is not new for many Latin American markets.
“In Brazil, at least 80% of the population does some kind of transaction where they are buying something and paying [for] it in instalments,” says Victor Pego, business manager for Brazil at Temenos, a banking software company.
In Brazil, interest-free payment on cards emerged in the 1990s on the back of hyperinflation. Many of the country’s companies now also carry out decades-old practices in a digitised way.
However, pure buy now, pay later (BNPL) providers are different — mainly because they do not require a credit card or even a bank account, and instead use data analysis and technology to assess creditworthiness.
Many banks in the region offer payment in instalments, but usually only for clients who have credit cards. Therefore, BNPL solutions can be especially attractive for the segments of the population that have limits on their credit cards or are not willing to compromise those limits. So far it is fintechs that have really been targeting the lower socioeconomic demographic, says Andreas Farge, director at consultancy Americas Market Intelligence.
In Latin America, BNPL can target a significant portion of the population given the low numbers of people able to access banking services. “That’s where fintechs are navigating to acquire new customers,” says Mr Pego.
Opportunities for banks
A lot of banks are waking up and realising BNPL is an opportunity for them as well. Peruvian bank BCP offers a product called Cuotéalo, which allows customers to make purchases without a credit card.
Lenders are looking at this solution with interest as credit cards — one of their main products — are slowly losing share to other payment methods.
Establishing a partnership with merchants, and therefore offering their BNPL services to consumers, banks have the potential to easily onboard new clients, according to Mr Pego. Furthermore, incumbents can provide greater flexibility of loan terms and look at cross-selling opportunities.
Lenders can either build their own BNPL solution or resort to external providers. For example, Temenos offers a BNPL solution targeted at banks who wish to offer them to merchants, or enable their customers to convert past transactions to BNPL ones.
Banks’ entrance into BNPL could bring more stability to a sector that is mostly unregulated, according to an Accenture survey and report. Some 40% of respondents to the survey said they would be more willing to adopt BNPL if it was provided by their primary bank. Banks tend to charge interest on their BNPL offerings, albeit at a lower rate than their credit cards, says the report.
“I think BNPL is also riskier, since it is targeting the lower socioeconomic levels. But as more companies active in the space come out, people will get more comfortable with the concept. It’s an opportunity but definitely a double-edged sword,” says Mr Farge.
Lenders should focus on higher-ticket purchases, targeting retail customers or businesses, says Mr Pego.
Open banking key for BNPL growth
Worldwide, BNPL is getting more traction among consumers and represented 5% of 2022 global e-commerce spending, as per the 2023 Global Payments Report by WorldPay.
Open banking regulation throughout Latin America will support the growth of the sector, allowing the sharing of customers’ data among institutions. It will also provide more information to financial institutions, allowing them to be more comfortable when extending credit via BNPL models.
Mexico, Colombia and Peru are among the countries with the greatest disruptive potential due to the BNPL model, according to a report by Americas Market Intelligence. This was determined thanks to a data matrix where the percentage of credit card penetration in each country was combined with the average debt capacity of its consumers.
Moreover, in Mexico, Colombia, Peru and Chile, there was a smaller number of credit cards in 2021 compared to those that circulated in 2015, says the consultancy. With consumers looking to reduce interest payments in a time of rising inflation and interest rates, BNPL could be a compelling way for banks to expand their product portfolio.
