If you live in the US, UK or Australia, having a personal bank account and a debit or credit card is a matter of course. But in many other parts of the world, more than 1.7 billion people -- according to the World Bank -- still have no access to personal bank accounts at all.
For millions of Unbanked Latin Americans, online shopping is a two-step process: buy goods from online merchants and pay for them via cash alternatives, such as Brazil's Boleto Bancrio (a bank receipt) or a voucher system handled through local convenience stores, such as Mexico's 7-Eleven.
This situation may be appropriate for small purchases, but for cash-strapped individuals or those looking to purchase large items, the ability to pay in installments is critical to sales. This has led to the explosive growth of "buy now, pay later" (BNPL) digital options, new digital payments designed to improve access to online shopping and facilitate more e-commerce transactions.
Unlike credit cards or lines of credit issued by banks, BNPL allows consumers to pay for purchases through short-term loans, which typically do not charge interest to shoppers. These small loans are made at the time of purchase and are borrowed in two main ways. The first is point of sale loans, where BNPL providers work with merchants to provide financing at the checkout. The other is installment plans, which allow people to shop online and pay for their items in pre-determined installments. Both involve credit verification steps that are typically managed by BNPL service providers. These loans are usually interest-free if the customer pays on time. For other transactions, interest charges may be charged in advance.
BNPL service providers make money by charging merchants transaction fees, but in turn, merchants benefit from reaching more customers and improving cart conversion and sales. BNPL providers also verify the customer's ability to pay through their own soft credit checks or underwriting processes, thus removing much of the risk of non-payment and fraud from the merchant's shoulders.
Sebastian Fantini says installment payments have been a common practice in Latin America for more than 30 years, making offering a digital BNPL solution an obvious choice for online merchants who want to attract customers who would otherwise shop in a physical store. B2B product manager for global fintech company EBANX, providing payment solutions for Latin America companies like Spotify and AliExpress, including integration with hundreds of local methods.