Earlier this month, Divido joined fintech’s best and brightest in Amsterdam for Money20/20 Europe.
The team showcased Divido’s leading checkout finance platform to the world’s biggest financial innovators, and even took to the stage to share their thoughts about how to add value to payment systems.
Money20/20 Europe may be finished, but the conversations and learnings from the event still permeate.
So, to extract some of those expert learnings, we caught up with Divido’s Money20/20 team to discover their key takeaways from the event.
1. The market is changing, as is the funding landscape
After speaking to several venture capitalists at the event, COO Neha Mittal discovered that the appetite for investing in 2022 is significantly lower than it was in 2019. “Amidst the turbulence, the general view among investors is that the fundraising market has shifted as a result of the macroenvironment,” Neha said.
Why is this?
Well, on the one hand, many have noticed the profitability and sustainability of buy now, pay later (BNPL) business models coming into question. Klarna’s recent funding round, which saw the company’s valuation slashed from its $46bn peak in June 2021 to $15bn, seems to have been taken as representative of the entire industry.
On the other hand, with interest rates starting to soar, the cost of borrowing is set to go up with it – and with a possible recession looming on the horizon, it seems like the perfect storm of high-cost, low-demand for BNPL investors.
All in all, it seems investors are choosing to watch the industry from a safe distance while they wait for a clearer picture of the industry to emerge.
Mind you, that’s not to say they don’t have funds ready to deploy – and when their appetite returns, there’s sure to be a sudden rush to secure those funds.
Read: 3 tips for merchants navigating a changing BNPL market
2. Buy now, pay later is still high on the agenda – but responsible lending takes centre stage
Apple dropped a bombshell the evening before Money20/20 that it would be entering the BNPL market with its zero-interest, zero-fee finance product, Apple Pay Later.
While most industry players do not see this as a cause for concern, the announcement still piqued the interest of many attendees, who went on the hunt for as much information as they could find about BNPL.
That was good news for presenters representing the BNPL industry, who found their talks attracting much larger audiences than expected.
Among those talks, one in particular stood out. Titled “What’s Next For Buy Now, Pay Later (BNPL)?”, the discussion posited ideas for the future of the BNPL market.
Insights came from Alice Tapper, financial expert and founder of Go Fund Yourself, Clare Gambardella, chief customer officer at Zopa, Louise Maynard-Atem, head of data insights at GBG and Ruth Spratt, UK country manager at Zip.
The discussion centred around responsible lending, with each member of the panel bringing a different perspective.
Clare Gambardella of Zopa, a Payments Service Provider, took a conservative view. As Zopa sees it, terms of BNPL agreements should be provided up-front and clearly written out, to guide consumers.
“We are seeing a situation where the proportion of customer outcomes is not as positive as we would want it to be. And I think that’s really due to issues around affordability, around the transparency of the agreement that the customer is entering into, and also the tools and the education that customers have in order to manage debt at the point that they take it on, in what can be quite a fragmented environment,” said Gambardella.
Ruth Spratt of Zip, a BNPL service provider and lender, had a different perspective. For Spratt, the bottom line was that providers should not be overly paternalistic. Making the case that BNPL is a payment and not a loan, Spratt said that overregulation would be unnecessary, adding that the majority of consumers are responsible and should be treated as such.
Meanwhile, Tapper, who started an online petition to regulate BNPL, called for new legislation to “focus on protection and education.”
“Regulators should have the foresight to define pre-regulation on anticipated new payment technology,” she said.
Neha agrees with Tapper’s point, adding: “A small amount of friction in the journey is a good thing – it lets the customer know they are entering into a credit agreement. But regulation is still necessary.”
What does responsible lending look like for buy now, pay later? That’s still up for debate. But one thing we do know is that the regulatory landscape is changing, and providers will need to adapt in order to ensure they are doing their best to protect customers.
Read: BNPL Regulation: Will it improve consumer confidence?
3. Want to add value to your payment systems? Put your customer at the centre
The payments infrastructure in Europe is undergoing a huge transformation. But for payments companies, it’s starting to look like a race to the bottom. So, how do they make money? The answer: Payments+.
But what is Payments+, and how can it augment the typical payments system? To answer this question, Divido’s own Neha Mittal joined Andras Rung, CEO and UX Strategist at Ergomania Digital Product Design, Cyril Chiche, CEO at Lydia, Francesco Simoneschi, CEO at True Layer, and Valerie Nowak, Executive VP of Product and Innovation, Europe at Mastercard on stage for day two of Money20/20.
“It was interesting that all of us had a different view of Payments+,” said Neha. “Even so, we were all focussed on the consumer and understanding the consumer.”
TrueLayer poured their attention on open banking. For Simoneschi and his team, Payments+ was about using data to the give the customer power by making more options available to them.
Meanwhile, Chiche, from French challenger bank and SuperApp Lydia, argued that payments should be connected to emotionms. The CEO used an example of taking a photograph at the end of a meal for this mother’s birthday, soi that when the transaction appears in their bank statement, they are reminded of the experience.
“If you are thinking about the customer, you will implement your payment solution in-store for when the customer engages with the product.
“What we do at Divido is enable a solution called ‘Finance First’ for Nordea. For the bike purchase, you get a pre-approval which says how much you can afford. The customer can then go into the store and choose their bike. After that, it’s a very simple ‘tap and pay’, and they’re done.”
“For us, it’s about understanding what the customer needs and the journey they go on – whether it’s online or in-store – and making it as frictionless as possible. That’s Payments+”.
So whether it’s through data, emotions, or optimising your customer journey, the customer is key.
Read: Payment innovations are changing the customer experience. Here’s how
4. Partnerships are powerful
Buy it, or build it?
That’s a question banks have asked themselves time and again.
Buy the technology to remain competitive, increase agility, and get to market fast? Or build in-house to remain in full control?
In the good old days, there was no question: banks would always build, never buy.
But, now that the pace of technology has outstripped the banks’ abilities to innovate, they are increasingly looking to partner with fintechs as the most effective way to bolster their market share.
“There’s a really strong partnership theme that runs through the payments ecosystems,” said Divido’s Business Development Director for Lenders, Jack Diakou.
“It’s always been there, but it was even more apparent at Money20/20. There are an increasing number of niche service providers that fit within the payments ecosystem. If you take BNPL as an example, that end-to-end value chain consists of many microservices. Divido’s orchestration platform was built to simplify the launch of retail finance programmes for both lenders and retailers, seamlessly threading these services together.
“Partnerships breed a culture of collaboration, and are key to expanding capabilities and expertise.”
Lee Dunne, Head Of Global Partnerships at Divido added, “I’ve been in banking and payments for the last twenty years. I’ve never seen it move as quickly as it has in the last three.
“I think the pandemic contributed. As we were locked down, businesses shifted their focus from sales to concentrate more on technology and ecosystems. This has benefitted everybody, including Divido, when looking for the right companies to partner with.
“A lot of the Financial Institutions (FIs) and Payment Service Providers (PSPs) have realised they don’t have the expertise in-house to build the sort of tech that we and other partners are offering. It’s been key for these organisations to understand that there are really good partners out there that they can work collaboratively with. Partners bring real value and value-added-services to the FIs’ and PSPs’ ecosystems, which they can deliver to their merchants.”
Neha agreed, predicting that embedded finance will change the landscape. “Banks were hesitant to partner five years ago,” she said. “The preference at that time was to build technology in-house as fintechs were seen as risky. That’s completely changed now.
“Take Divido as an example. We are a small company and yet we work with the likes of Nordea – a big bank. What banks have realised is that if they want to innovate, they have to work with fintechs; they have to work with innovators. Working with innovators like us, Divido, means banks can scale really quickly.
“There is lots of innovation happening within payments. Divido can deploy this innovation across the huge infrastructure of a multinational bank in months, as opposed to the 10 or more years it would take them to do it themselves.”