Open Banking Drives Instant, Large-Ticket Financing in Europe

Buoyed by changing consumer habits in the wake of the pandemic, the buy now, pay later (BNPL) financing model has exploded in recent years, with more and more consumers and businesses embracing interest-free installment payments on purchases to avoid credit card debt.

This surge in adoption has naturally created fierce competition in the BNPL space as established lenders compete with new players vying for a slice of the growing pie. But according to Geoffroy Guigou, COO at pan-European FinTech firm Younited, it’ll take much more than just the convenience and flexibility associated with the payment option to win over customers, especially at a time when regulators’ awareness of the risks that BNPL structures pose to consumers is increasing.

In fact, earlier this year, the U.K. launched a long-awaited consultation as part of plans to tighten rules around the use of interest-free BNPL products, while the EU has also moved to end the laissez-faire environment in which BNPL providers have been operating in so far across most parts of the region.

But not all credit lenders are sweating the new regulations, said Guigou, who said his Paris-based company made the choice back in 2011 “not to offer any unregulated BNPL service in Europe,” becoming one of the few players in the region to have acquired a European Central Bank (ECB)-issued credit institution license.

He credits that decision with the firm’s growth and success since, telling PYMNTS that uptake of instant credit offering, either online or in-store, has seen tremendous growth over the last two to three years, especially in the consumer electronics space and the telecommunication sector, where the firm acts as the financing for three of the four major telcos in France.

Last year, the European FinTech firm, which operates in four countries outside of its home base of France — Italy, Spain, Portugal and Germany — saw its annual revenues grow 50% to reach nearly €200 million ($215 million) at a valuation of over $1 billion. And according to Guigou, that revenue size rivals that of German neobank and leading European FinTech unicorn, N26.

And he predicts strong growth momentum moving forward. In fact, Guigou noted that the company hit profitability in Italy and France for the first time last year, and though it serves 1 million customers, having access to over 260 million customers and roughly 60-70% of the European market across its markets holds great promise.

PSD2 Simplifies Instant Loan Disbursements

Adoption of instant disbursements hit record highs in 2022 and is anticipated to continue increasing in the near term. In fact, according to a recent PYMNTS report, “two-thirds of customers who tap FinTechs as their financial institutions (FIs) would be very or extremely willing to pay extra specifically for instant loan disbursements.”

Against that backdrop, the EU-focused lender announced a partnership with leading European open banking platform Tink last month to expand its instant credit offering to more consumers and businesses in Europe.

“Instant decisioning is at the core of our value proposition to our customers and to the retailers that offer Younited Credit as a point-of-sale financing solution in their shops, be it online and offline,” Guigou explained.

Certainly, other major players in the BNPL segment like Klarna and Affirm offer instant decisioning, but Guigou said Younited has an edge given its ability to offer large-ticket financing of €50,000 (about $53,800) and a payback period of up to 84 months, much longer than the short maturities competitors offer.

Moreover, with open banking technology enabled by the EU’s Second Payment Services Directive (PSD2), he said it is much easier to instantly score individuals who have an atypical profile or irregular income by reviewing just a few months of banking history, further boosting customer loyalty and satisfaction.

“More than half of our total instant credit offerings are based on PSD2, so this has totally transformed our business over the last years,” he noted, adding that leveraging open banking data with artificial intelligence (AI) becomes a much more powerful tool than data sets from legacy credit bureaus.

Moving forward, he added that PSD2 regulation will continue to transform the European lending business, where there has not been any significant industry innovation in the last decade, including in other geographies like the U.S. and Asia.

As Guigou noted, “PSD2 and access to open banking data … have a massive impact on risk and fraud reduction and are helping to provide new [budget-focused] services like Younited Coach, which are of utmost importance in the current inflationary environment where people are trying to increase savings.”

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