Embedded Lending in Action: The Potential of Buy-Now, Pay-Later

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In some form or other, credit has existed nearly as long as money has. The concept of lending is baked into our financial systems. But the way in which consumers access credit and lending is changing.

In response to the Great Recession of 2008, younger generations are significantly more debt averse than their predecessors. Just consider how only 50% and 36%, respectively, of Millennials and Gen Z’ers own a credit card compared to the 69% ownership rate of Baby Boomers.

Access to credit, however, is still a necessity, no matter how debt-averse one is. In order to cater to this generations’ different wants and needs, innovative banks and Fintechs are pushing the envelope of lending methods, from automation and open APIs to business-oriented crowdfunding or even real estate mortgages.

One of the best examples of this evolution is embedded lending — and more specifically, buy-now, pay-later (BNPL) lending models.

In this installment of our embedded finance series, we’re highlighting how this cutting-edge approach to financial services is disrupting lending. To learn more, we reached out to Laurel Wolfe, Vice President of Marketing at Mambu, a SaaS cloud banking platform designed to flexibly integrate with providers and companies that want to offer their own financial products, including lending options. As a representative of Mambu (and formerly at Klarna), Laurel has unique insights into the ways BNPL is changing how retailers, payments providers and more serve their customers.

What does BNPL look like?

BNPL and embedded lending are a subset of embedded finance; that is, financial services that exist invisibly in places where you wouldn’t normally expect to find them. The goal, she says, is to “know your audience really well and give them what they want, when and where they want it.”

It’s a highly customer-centric method of providing financial services. In the case of BNPL, embedded lending provides customers with the expanded access to credit they want, right at the point of sale (POS).

Streamlined customer credit

BNPL enables retailers to provide their customers with access to credit through their e-commerce app, payments processor or other channels. Fintechs like Afterpay, Klarna and Sezzle provide the necessary technology and data to facilitate this service.

In essence, BNPL is an installment plan. A consumer wants to purchase a product and opts to spread the total cost over time. By choosing the retailer’s BNPL option, the shopper in effect takes out a small loan. They then pay for their purchase over the course of weeks at (usually) zero interest. The retailer is paid upfront and in full for the total cost of the purchase and the BNPL provider collects the funds from the shopper.

In contrast, the traditional way to do this was for a consumer to put the purchase on a credit card or even take out a bank loan, which comes with significant interest rates and takes time to get approved.

Fintechs, however, have access to more data to assess credit risk; they can approve loans much faster than a traditional bank; and they can easily integrate all of this right into the retailer’s ecommerce platform. All of this combines to increase access to loans — including for those who might not have a credit history — and reduce the high rates associated with traditional consumer finance, store cards and credit lending. It’s a highly customer-centric, inclusive form of lending.

Learn more:

How embedded finance is bringing innovation to the lending industry

The evolution of Lendtech post COVID-19

“A lot of younger people don’t necessarily have a credit card or they don’t want to have a credit card,” said Laurel. “This is [an alternate] way to offer credit.” Using data that’s external or in addition to credit bureau data, Fintechs offering BNPL capabilities can gain better insight into an individual’s credit risk than just what their FICO score says.

Between younger generation’s credit aversion and the increased access that BNPL provides, the research shows that this method of lending is growing fast. In fact, according to McKinsey research, consumer usage of POS installments is growing 3 times faster than credit card usage and 5 times faster than private-label card usage — making them among the fastest growing payment methods today.

Beyond the fact that BNPL enables more consumers to purchase products they otherwise couldn’t, Laurel also pointed out that providing BNPL services gives retailers greater ownership over the customer lifecycle. “It gives you a broader insight into your customer… You get to know more about them, and you can make the relationship stickier because you’re offering them more than you were before.”

A new standard for lending

Naturally, BNPL-style installment plans and loans aren’t anything new, per se. What’s changed is the way loans are delivered, their context and their pace. As Laurel puts it:

When you think about who’s successful in lending right now, it’s those that can be fast moving, like Fintechs. […] People are all about convenience and control, and they don’t want to wait. To have a full credit check done in the past could take weeks. Consumers are looking for something that’s quicker and more immediate now. Our lives are built on immediacy now, particularly in our shopping preferences, and that is bleeding into our expectations on financial services too.

It’s this focus on the customer that’s driving embedded finance innovation like BNPL. Ultimately, modern customers expect their service to be fast, personalized and seamless. This customer-centric experience, however, can’t occur in a vacuum. Fintechs and traditional financial institutions alike have to collaborate to make it happen.

Per Laurel: “We all need to drive forward for the good of the customer. Some of it’s keeping in mind, ‘Why do you do what you do?’ The answer should always be to provide a better financial experience for your customer.” That necessitates certain partnership parameters, from shared goals to shared technology. She points out key factors like prioritizing open APIs, transparency and collaboration.

“The best outcome for everyone,” Laurel continued, “is a happy, loyal customer. And that’s why collaboration is important.”

Currencycloud and Mambu’s partnership is a great example. Currencycloud takes the complexity out of international transactions by enabling businesses to embed a seamless, prebuilt global financial infrastructure. With everything from virtual wallets to named accounts, plus the ability to send, receive and manage your multi-currency payments, Currencycloud’s software enables businesses like Sezzle and others to operate in the BNPL space. But that’s not the only service that businesses need: Mambu is a banking and financial services platform with a unique composable approach, which means businesses can connect to best-in-class services like Currencycloud to build the modern financial offerings that end users demand.

Collaboration and customer-centricity is key to staying ahead of the many new challenges and opportunities facing the financial world. If your business could benefit from working with Fintechs that take these values to heart, get in touch.


And don’t miss the other articles in this series: we’ve talked about how this growing trend is empowering companies to own the transactions within their platforms. We’ve seen how Fintechs like HUBUC are jumping on this trend to deliver embedded banking services, and how banks are adapting to these developments.

More To Explore


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