NatWest Group PLC’s planned move into the “Buy Now, Pay Later” follows the relative success of Klarna and is perfectly timed to appeal to cash-strapped consumers as Britain’s cost-of-living crisis begins to bite.
The government-owned lender will offer the form of credit for items ranging from clothes to pet food, this summer to some 18mln customers (read more).
BNPL typically works by allowing shoppers to pay later for goods with no interest or charges unless they fail to pay back on time. If so, they usually face late fees.
The lender’s move comes as banks face competition from fintechs such as Klarna, which is reported to have plans for an IPO, with some estimates of it reaching a valuation of US$50bln.
NatWest shares, meanwhile, are down about 6% this year as the uncertain outlook for the economy weighs on banks, even in an environment of rising interest rates which could potentially boost lending margins.
For banks, it’s an attractive market with runaway growth.
Annual BNPL transactions total £6.4bln, according to consultancy Bain & Co., increasing at a rate of about 70%.
But soaring energy costs and rising inflation on everyday goods suggest the Edinburgh-based lender is entering the market at a time when demand for BNPL products will intensify.
Figures out on Wednesday showed UK inflation at 6.2% in February - the highest in three decades.
Still, entering the market doesn’t come without risk for a banking industry that's faced billions of pounds in fines related to past mis-selling scandals since the financial crisis.
There's nothing to suggest that new entrants won't play by the rules, but it's worth noting that scrutiny on BNPL products is tightening.
Although not all BNPL products are regulated by the Financial Conduct Authority, all firms must comply with consumer protection legislation, which the FCA has the ability to enforce.
And under government plans the watchdog will oversee the products in the future.
Shares in NatWest eased 0.5% to 221.4p.