«Buy Now Pay Later» is the hottest trend in the international payments business, and the established players in Switzerland don’t want to leave all the action to the fintechs.

Everyone is talking about paying in installments as a new growth area in the highly competitive payment business.

The giants in the sector are prepared to spend billions on it. U.S. online payment service PayPal Thursday announced it will pay $2.7 billion for the Japanese buy-now-pay-later specialist Paidy.
In August, San Francisco-based payment company Square offered $ 29 billion for the Australian company Afterpay - the largest takeover offer of all time down under.

Internet giants such as Apple and Amazon are also becoming involved. Even the credit card giant Visa has announced a by-now-pay-later offering.

Europe’s Most Valuable Fintech

Sources say all this is making waves in the Swiss financial center, at least since Klarna launched its shopping app in Switzerland.

The Swedish fintech is a pioneer and, thanks to buy now pay later, has become the most valuable fintech in Europe. «It’s therefore a logical outcome that the established Swiss credit card players are also looking into buy-now-pay-later services,» Stephan Lohnert from the consultancy Capco said.

Bill payments integrated into online trading are one of the few fields that still promise growth in the payment business, Lohnert added. The interest on the installments means a lucrative online segment is opening up.

3 Bln-5 Bln Francs Worth of Potential

Lohnert estimates the current turnover in installment payments on credit cards (so-called revolving loans) in Switzerland at around 3 billion Swiss francs ($3.3 billion) a year. With growth and the additional transactions from buy-now-pay-later services, the consultant expects a potential market volume of 3 billion to 5 billion francs.

The domestic financial establishment is unlikely to leave that kind of money to young upstarts like Klarna especially because there is much to lose. Even now, the credit card business is a war zone.

Neobanks such as Revolut and N26 have penetrated Switzerland and are putting pressure on fees. In addition, credit card sales have suffered a severe setback due to the coronavirus pandemic slashing income from the lucrative travel and hospitality sectors.

Buy-now-pay-later offerings are also a threat to turnover for credit card issuers, companies such as Viseca, Cornercard, UBS, Swisscard (Credit Suisse) or Cembra Money Bank. «This is making them look around for new sources of income even more,» Lohnert said.

Open Goal for Twint?

So far, peace has reigned in Switzerland. Klarna has not yet activated its installment payment function there. On the other hand, Markus Kilb, the CEO of Twint, the Swiss banks’ payment app recently told journalists that the company was looking into offering payment by installments. Sources say Twint, which has over 3 million users in Switzerland, is tailor-made for buy-now-pay-later offerings.

Credit card issuers also have an interest in not being overtaken. Swissbilling, a subsidiary of Cembra, already offers purchase on account solutions as a means of payment.

However, regulation is a potential obstacle. In particular, the federal law on consumer credit (KKG) is considered too rigid by the financial-services industry. Loans with repayment periods of more than three months, loans are usually subject to the KKG.

Convenience Sells

And last but not least, the question arises as to how Swiss consumers react to the new services. The Swiss are conservative when it comes to getting into debt, but in recent years they have become less so.

The pioneers of digitization are showing how to acquire users by offering convenience. Retailers such as Amazon already offer payment on account abroad as a fully integrated solution on their platform; the installment payments are debited from the buyer's account at the push of a button. «If similarly simple solutions come onto the Swiss market, users will definitely give them a go,» Capco’s Lohnert said.