Introduction
Community Banks in the US are currently looking for options to expand their business and stay relevant in the digital era. Even though the “high touch” services aimed at the local community will remain a key activity for community banks, the “low touch” digital services will likely become the main revenue-generating activity. In my opinion, every community bank should aim to target users outside of their physical communities via digital services and find digital communities within the physical space within their bank charter scope.
One way to find new digital communities is to partner with fintechs to provide innovative financial solutions, bringing to the table the underlying banking capabilities through a Banking-as-a-Service (BaaS) model. A recent example that has been trending is the Buy Now Pay Later (BNPL) payment option. Many fintechs, including Apple, are providing the BNPL option to their users while many financial intermediaries are left wondering what they should do in response.
By using SAP Fioneer Cloud for Banking (C4B), it is easy for Community Banks to be ready to provide BaaS to partner with fintechs, provide BNPL, find new digital communities, and increase their business rapidly.
The Buy Now Pay Later (BNPL) market
According to Grand View Research’s report on BNPL, the market is already sizable and will keep growing.
“The global Buy Now Pay Later market size was valued at USD 5.01 billion in 2021 and is expected to register a compound annual growth rate (CAGR) of 26.0% from 2022 to 2030. Factors fueling the growth of the market include digitization, increasing merchant adoption, the growing repeat usage among younger consumers, and the introduction of new players offering lending through BNPL services. Younger consumers prefer using BNPL services as it provides several benefits, such as buying high-cost laptops and smartphones and making payments for stationery products.”
With such a positive perspective, it makes sense for banks and fintechs to start providing solutions in this space. In fact, fintech companies such as Afterpay and Klarna have a head start when it comes to being available to customers at the moment of payment. Afterpay allows users to pay later by showing up as a payment method on e-commerce websites. Klarna allows users to split purchases into 4 interest-free payments by using an app. However, the most interesting case is Apple, which very recently decided to take Apple Pay in a similar direction and is now offering an option very similar to Klarna, splitting purchases into 4 interest-free payments.
Community Banks should think about these and other fintechs in the payment space as possible partners, not as competitors since all of them lack something that Banks already have: a Bank License and Regulatory Compliance. Similarly, fintechs will bring additional customers and integrations with e-commerce platforms ready to go into business.
How to deliver the BNPL functionality using C4B?
The good news is that C4B is a cloud-based SaaS core banking platform that enables BaaS right from the start. To get BNPL enabled as a service, the bank can enable with simple configuration a loan product type for “BNPL loans” and share the built-in Application Programming Interface (API) with the fintech. The latter will use the API to access standardized core banking methods to create the customers, loans, and flow of funds at the moment of payment.
The fintech only has to make 3 API calls to get the end customer an interest-free loan to support the purchase and pay later.
Create Customer (Person Set)
The first API call is to create a Person or Customer in the core banking platform. This can be done with basic data from the customer. This data can be requested at the moment of purchase or could be coming from the customer’s pre-stored account.
This is the PersonSet API information.
API Endpoint: /s4b/v15/bp/PersonSet
Method: POST
API Definition: /s4b/v15/bp/
Inspect API Definition JSON with Swagger.io
URL example: https://your.btpt.tenant.dev.com/s4b/v15/bp/PersonSet
Payload example:
If successful, the API will return a unique Customer ID that we will use to create a loan for this customer.
Create Loan (Loan Request)
The second API call is to create the loan in the core banking platform. This can be done with basic data from the purchase and a series of values that can be determined through customer choices or business rules in the front-end. For example, will the payment plan be interest-free with a 4-week term or 2% interest with a 12-month term?
This is the LoanRequest API information.
API Endpoint: /s4b/v1/laccrt/LoanRequest
Method: POST
API Definition: /s4b/v1/laccrt/
Inspect API Definition JSON with Swagger.io
URL example: https://your.btpt.tenant.dev.com/s4b/v1/laccrt/LoanRequest
Payload example:
If successful, the API will return a unique loan ID that we will use to disburse the funds in the final API call.
Disburse Funds (Disbursement Set)
Finally, the third API call is simply to make the loan funds available to cover the purchase.
This is the DisbursementSet API information.
API Endpoint: /s4b/v1/lacldr/DisbursementSet
Method: POST
API Definition: /s4b/v1/lacldr/
Inspect API Definition JSON with Swagger.io
URL example: https://your.btpt.tenant.dev.com/s4b/v1/lacldr/DisbursementSet
Payload example:
And with this, the Customer is now part of the Bank, the loan for the BNPL is created, and the funds are available to cover the purchase.