Paying it Forward: The Future of BNPL, GenAI, and Embedded Finance in PayTech

Amid continuing economic uncertainties, consumers are taking advantage of a raft of emerging technologies in financial management, investment, and savings. We are rapidly moving towards a cashless society, where card payments and digital wallets are the norm.

We stand at the brink of a revolutionary period in fintech, driven by embedded finance solutions that see the integration of financial services into non-financial offerings tailored to meet consumers’ banking and payment requirements. Consumers are also progressively embracing financial services offered by brands over traditional providers, with research indicating that nearly 25% of UK consumers possess a brand-affiliated credit card, and 54% of these identify more with the brand than with the bank. 

Emerging technologies are opening the door to more flexible short term credit options like Buy Now Pay Later (BNPL) in retail environments. As consumers grow more accustomed to automated digital payment systems, there will be an escalating demand for seamless, integrated payment experiences with minimal friction. BNPL options offer consumers much greater levels of flexibility. Some BNPL providers may conduct soft credit checks or no credit checks at all, giving instant access to credit at the check-out. This type of access to credit can help bridge gaps amid the rising cost-of-living crisis and high inflation. 

A recent study revealed that 38% of UK consumers have used BNPL services to manage their finances in the past year, with this figure rising to 61% among individuals aged 26-34. Individuals are drawn to BNPL due to the absence of interest charges and the enhanced flexibility it offers for budget management. Moreover, consumers mentioned BNPL as a valuable alternative for obtaining credit, especially when facing challenges in securing approval for traditional credit card applications. 

By 2025, the BNPL market in Europe is projected to reach €300 billion, constituting approximately 11% of the region's e-commerce market. As consumer adoption of BNPL rises, the payments sector is poised for a notable structural and cultural transformation toward short-term credit, shedding its previous stigma as consumers seek to better manage their finances. Rather than serving as a rival to credit cards or a 'credit card killer,' BNPL emerges as a valuable tool for discerning consumers to cultivate credit and attain access to supplementary, more adaptable credit services. 

Another challenge associated with the rapid rise in new avenues of credit is that of fraud. However, advances made in GenAI could help. The process of credit underwriting is traditionally reliant on historical financial behaviour and a predetermined credit score tied to an individual. AI models can analyse extensive datasets beyond the confines of traditional credit scores. Factors such as recurring payments, employment history, and additional behavioural patterns are scrutinised, allowing for a deeper understanding of human behaviour that may otherwise go unnoticed. AI holds the potential to facilitate broader access to risk-free credit than previously achievable. 

AI could also give rise to ground-breaking credit solutions such as “Predictive Credit Cards,” which use previous consumer behaviour to customise credit limits and rewards. Automation and sophisticated data analysis offer the potential to transform credit application procedures, extending beyond traditional credit scoring methods to encompass a wider range of consumer data. 

The future of finance lies at the intersection of innovation, consumer preferences, and technological advancement. Payment providers must prioritise meeting the financial objectives of both customers and sellers, while merchants need to be provided with the requisite skills and knowledge to capitalise on the transition to non-cash payments. This includes embracing emerging practices like BNPL, taking advantage of developments in AI, and expanding the use of embedded finance.