Bursting bubbles in merchant payments: ecommerce, BNPL, and Open Banking

Friday 3 June 2022 07:48 CET | Editor: Anda Kania | Interview

The most discussed topics in the payments industry – ecommerce, BNPL, and Open Banking – are further challenged by experts from the MPE community 

Pandemic ecommerce bubble: Yes/No?

How do you foresee the ecommerce growth? Is it a bubble that will burst in due course?

Cayleigh Palen, Global Payments Partnerships,  Reach

The last few years have turned a lot of industries on their head, but very few saw the large impact that global ecommerce has had. The reason I believe the bubble is here to stay is the growth it’s still seeing despite the difference between now and the beginning of 2020. Initially,  people were sheltered inside for the most part at the beginning of the pandemic. This caused two things to happen. First, the easiest and, at the time, safest way to get everyday goods was through some sort of ecommerce platform. Second, money was being injected into the economy and consumer pockets to keep things running during the pandemic. Fast forward to now and two years later things are drastically different than the beginning of 2020, we know more and we do more - yet the ecommerce trends over the last year remain.

Kai Lindström, VP of Payments at SOK, Finland

Ecommerce is here to stay and the pandemic growth made the shift faster and larger. People who were forced to use the web or app-based purchasing during the pandemic have now found out how easy and convenient buying online is, so they’ll continue to use it more and more. 

That said, there are also signs that people like to come back to the hypermarkets and shopping malls to spend time, do some shopping and visit cafés and restaurants with family and friends. So at least I hope that there’s going to be some level of resurgence of brick-and-mortar. 

Pavel Kaminsky, founder and CEO, 7Security GmbH

I do not see the bubble bursting, in fact, just the opposite. As a Qualified Security Assessor (QSA), I see more and more fintech startups that are offering innovative ecommerce payment solutions and services, and they do so with great success. The pandemic was of course a factor in influencing more users to start buying and paying online. Now that customers are used to online shopping, they are embracing and enjoying all the benefits ecommerce payments can offer.

BNPL bubble: Yes/No?

BNPL has become one of the fastest-growing retail and payment trends in 2022. Is BNLP bubble going to burst?

David Parker, CEO, Polymath Consulting

Yes, BNPL services will become more regulated just like any other lending product with affordability checks. As soon as BNPL becomes a pre-approved structure with affordability checks, it will be able to remove the impulse aspect while also bringing it in line with other loan products.

Kai Lindström, VP of Payments at SOK, Finland

It depends on two things. First, will there be strict regulation with mandatory SCA? Second, it could burst if the fraud levels (e.g. identity fraud) increase and customers lose their faith in the safety of the payment method. I do think, however, that BNPL is here to stay and offers a convenient way to buy for many, especially for younger generations of consumers. 

Rónán Gallagher, Head of Omnichannel Product, Trust Payments 

I don’t believe that BNPL as a product is a bubble and we are likely to see increased usage of it as a mechanism, however, some of the valuations of the providers in the sector may be exhibiting bubble signs. The recent speculation is that Klarna may be seeking funding at a valuation of USD 30 billion compared to the prior valuation of USD 46 billion and they announced layoffs of 10% of their employees recently. The BNPL providers listed in Australia, several of which are active in the UK and Europe, are down around 85-90% from peak valuations in 2020/2021. In the US, Affirm hit USD 168 last November and at the time of writing is less than USD 25. BNPL providers will likely be challenged by the current economic conditions, which are seeing increases in interest rates that will increase their funding costs and economic headwinds that may reduce customer demand and, in turn, may reduce demand for their service.

Open Banking hype bubble in Europe

Valuations in the open banking space are soaring far beyond revenues. What are investors betting on? 

David Parker, CEO, Polymath Consulting

Accenture reported way back that OB would take up to 30% of card volume. It is nowhere near that yet but is growing at a huge rate. Further, the use cases of AISP are growing and with Variable Recurring Payments (VRPs) coming in, the volumes will continue to grow.

Kai Lindström, VP of Payments at SOK, Finland

They're expecting a widespread take-on by merchants, assuming their merchant service charges are lower than debit and credit cards. It is hoped that Open Banking will replace card usage, and investors hope this shift will be significant. Perhaps some price-leader merchants would even optimise and incentivise the usage of Open Banking instead of cards to push down the costs. 

More exciting trends will be discussed at MPE Berlin on 5-7 July 2022. Seasoned payments experts will share strategies for surviving and thriving in this changing landscape. So bursting bubbles or not, a lot of opportunities lie ahead and everybody needs to be aware of them. 

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Keywords: ecommerce, Open Banking, BNPL, merchants, fintech
Categories: Payments & Commerce
Countries: Europe
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