SIs

SIs

SaaS Offering

Credit Unions

AWS

NA

UKI

EMEA

APAC

Digital Credit

In the latest supervisory overview, the Consumer Financial Protection Bureau (CFPB) has noted the rapid expansion of Buy Now, Pay Later and earned wage, access options in recent years.

The Buy Now, Pay Later (BNPL) model has gained significant prominence recently, partly due to the CFPB’s Section 1033 mandate, which emphasizes the importance of consumer access to financial data in digital credit.

This regulatory focus has accelerated the push for transparency and fair lending practices, reinforcing the legitimacy of BNPL, as a viable alternative to traditional credit options and drawing attention to its transformative potential in the financial landscape.

Reach out to discuss this topic in depth.

Driving market factors for BNPL

The explosive growth of BNPL in the U.S. is underpinned by a convergence of influential factors. Firstly, millennials and Gen Z consumers, who value flexibility, transparency, and simplicity, have driven demand for payment solutions that align with modern, debt-conscious lifestyles. Unlike traditional credit cards, BNPL offers interest-free installments, fostering its appeal among these demographics.

The rise of e-commerce has also further accelerated BNPL adoption. Seamless integration with online retailers enhances the shopping experience, reduces cart abandonment, and drives higher order values. Economic pressures, including inflation and stagnant wages, have made BNPL a compelling alternative to high-interest credit cards, empowering consumers to manage their cash flow more effectively.

Merchants are also capitalizing on BNPL to remain competitive, attract customers, and boost conversion rates. Additionally, technological innovations, such as intuitive platforms and advanced data-driven credit assessments, have broadened access to BNPL, extending its reach to consumers with limited credit histories.

Aggressive marketing strategies and social media influences have heightened awareness, while limited regulatory scrutiny has enabled rapid innovation and expansion. Collectively, these factors have positioned BNPL as a driving force in the evolution of the U.S. financial landscape.

Should large banks embrace BNPL?

Large banks cannot afford to ignore BNPL’s transformative potential either. This payment model is redefining consumer expectations and challenging traditional credit products. Younger consumers, who demand transparency and flexibility, increasingly favor BNPL over conventional credit cards. By integrating BNPL into their offerings, banks can stay relevant, address evolving customer needs, and regain market share from nimble fintech disruptors.

BNPL also provides banks with strategic advantages, such as strengthening merchant relationships by offering payment solutions that enhance customer loyalty and conversion rates. Moreover, it opens up lucrative revenue streams through interest income, transaction fees, and cross-selling financial products.

Neglecting BNPL risks losing ground in a fast-growing market and allowing fintech competitors to erode banks’ dominance within consumer finance. Embracing BNPL is not just a competitive necessity but now a critical step toward future-proofing banking operations in an evolving financial landscape.

The impact of regulatory changes

The CFPB interpretive rule issued in May 2024, mandating BNPL lenders to provide consumers with the same protections as traditional credit cards, marks a significant shift. By enforcing transparency, fair lending practices, and robust dispute resolution mechanisms, the rule enhances consumer trust and aligns BNPL products with established credit standards.

However, this regulatory alignment increases compliance costs, potentially straining smaller providers and driving market consolidation. Traditional financial institutions stand to benefit, as regulatory parity levels the playing field, creating opportunities for banks and credit card issuers to expand their presence in the BNPL market. This development underscores the need for BNPL providers to balance compliance with innovation to maintain their competitive edge.

BNPL’s outlook for 2025

Following the record-breaking BNPL usage during the 2024 holiday season, the outlook for 2025 remains optimistic. Lower interest rates create a favorable environment for consumer spending, making BNPL an attractive option for flexible payment solutions. Providers are also expanding their offerings and entering new markets, capturing both new and existing users.

The CFPB’s regulatory mandate is expected to bolster consumer trust, driving broader adoption. However, challenges such as market saturation, changing consumer behaviors, and economic uncertainties could temper growth.

While 2025 is poised for robust BNPL activity, surpassing 2024’s performance will depend on sustained consumer demand and providers’ ability to innovate and differentiate in an increasingly competitive market.

Technology priorities amid legal scrutiny

Recent legal scrutiny surrounding major BNPL players like PayPal, Affirm, and Klarna is likely to shape their technology priorities in 2025. Compliance, transparency, and consumer protection will take center stage. These companies are expected to enhance their compliance systems with automated monitoring and reporting tools to meet evolving regulations.

Efforts to make user interfaces more transparent, with clear communication of terms, fees, and repayment obligations, will help reduce regulatory risks and build consumer trust. Scalable infrastructure will be essential for adapting to evolving product offerings, such as interest-bearing options or updated payment terms. Additionally, these companies may invest in tools to educate users on responsible borrowing and financial well-being. While regulatory challenges present obstacles, they also offer an opportunity to adopt a more consumer-centric and compliance-driven approach that balances innovation with accountability.

Conclusion

BNPL is reshaping the financial landscape, driven by shifting consumer preferences, technological advancements, and economic pressures. For large banks, embracing BNPL is not just about staying competitive, but about leading innovation in an evolving market. Regulatory changes and legal scrutiny add complexity, but also present opportunities for the sector to mature and build trust.

BNPL has come a long way since its inception in the early 2000’s. The exhibit below shows the journey of BNPL over the years.

As BNPL continues to grow, providers must navigate challenges like compliance costs and market saturation, while leveraging opportunities to innovate and expand. The future of BNPL lies in its ability to adapt to regulatory frameworks, meet consumer expectations, and redefine the way financial services are delivered in a dynamic market.

If you found this blog interesting, check out our blog focusing on Agentic Artificial Intelligence (AI): The Next Growth Frontier – Can It Drive Business Success For Banking & Financial Services (BFS) Enterprises? | Blog – Everest Group, which delves deeper into another topic covered by the BFSI service line.

To learn more about core banking and other topics relating to BNPL, contact Pranati Dave (pranati.dave@everestgrp.com) or Saumil Misra (saumil.misra@everestgrp.com)

As we step into 2025, the question remains, what’s next for the Banking and Financial Services (BFS) sector? There are shoots of growth and innovation, however the sector remains cautiously optimistic, as our team have discussed in this latest blog.  

As the banking and financial services (BFS) sector moves into 2025, it does so with a mixture of excitement and trepidation…  

Insights from Everest Group’s survey of over 220 global enterprises, has revealed that opportunities for growth and budget expansions are there, yet the challenges of 2024—regulatory pressures, economic uncertainties, and the demand for greater operational agility—remains persistent.  

To navigate this complex landscape, firms in BFS sector are prioritizing business resiliency, driving investments in modernization, cybersecurity, artificial intelligence (AI), and Financial Crime and Compliance (FCC) initiatives.  

The future of BFS products and services: connected, intelligent, and real-time 

The BFS sector is evolving rapidly, and the future of its products and services will revolve around three key attributes: connectedness, intelligence, and real-time capabilities. 

Artificial intelligence and machine learning are at the heart of this transformation, enabling personalized customer experiences, predictive analytics, and automated decision-making. 

Corporate banking clients, for instance, are demanding tighter integration of banking products with Enterprise Resource Planning (ERP), sales, and commerce platforms to streamline operations and enhance efficiency.  

Similarly, payments and lending firms are prioritizing real-time credit solutions at the point of sale, meeting customer expectations for immediate financial services. Banks such as HSBC are integrating AI with Customer Experience Management (CXM) and Customer Relationship Management (CRM) tools to offer tailored financial solutions.  

Furthermore, payments and lending platforms are prioritizing real-time credit solutions at the point of sale, a shift reflected in the growth of Buy-Now-Pay-Later (BNPL) models. 

These advancements not only improve customer satisfaction but also position BFS organizations in order to stay competitive in a digital-first landscape. 

Modernization and cybersecurity take center stage 

The rising costs of mainframe software and hardware, coupled with the potential of Generative AI (gen AI) to simplify modernization efforts, have reignited mainframe transformation as a priority for Chief Information Officers (CIOs). Core banking modernization projects, once deprioritized, are now being revisited as their critical role in ensuring business continuity becomes increasingly evident. 

Cybersecurity, meanwhile, has emerged as the fastest-growing segment in BFS Information Technology (IT) infrastructure services, second only to cloud transformation. With the sophistication of cyber threats on the rise, firms are ramping up investments in advanced technologies and frameworks to protect sensitive data and safeguard operations.  

Recently, Capital One and USAA have invested in Tidal Cyber to further enhance its enterprise Thread-informed Defense platform. This dual focus on modernization and cybersecurity underscores the sector’s commitment to addressing both technological and security challenges head-on. 

Mid-sized BFSI enterprises embrace offshoring 

Mid-sized BFSI enterprises are accelerating their offshoring strategies to reduce costs, access specialized talent, and enhance operational efficiency. Offshoring critical processes such as risk management, compliance monitoring, data analytics, and financial reporting allows these firms to focus on strategic growth initiatives while achieving scalability and agility.  

Mid-market firms have similar goals to large enterprises. However, they depend on providers for access to skilled talent, unlike larger enterprises that often manage these resources in-house. 

This trend reflects a strategic shift, as mid-sized firms look to stay competitive in a dynamic market by leveraging global talent and optimizing operations through offshoring.  

Generative AI: from concept to execution 

Gen AI is transitioning from a conceptual idea to practical execution. AI agents are now learning and executing business tasks, while collaborating with other agents to automate complex workflows.  

BFSI firms are channeling investments in gen AI to enhance both customer and employee experiences, while mid- and back-office processes remain largely untapped opportunities for service providers. 

Gen AI’s potential extends far beyond automation. It is now also being used to drive significant operational improvements across BFS organizations: 

• Asset servicing: Streamlining workflows for securities processing and other financial assets 

• Transfer agency: Enhancing accuracy and efficiency in managing shareholder records 

As adoption matures, service providers are poised to unlock efficiencies in these traditionally in-house processes, gen AI is helping BFS firms reimagine their operational models and focus on higher-value activities. Among banks, JPMC and Capital One are one of the fastest investors in both AI tech and talent. Leadership in JPMC also expects to soon realize benefits up to $ 2 billion on AI related investments.   

The rise of gen AI also coincides with a surge in demand for Business Process Outsourcing (BPO) in the BFS sector. Enterprises are increasingly outsourcing traditionally in-house tasks, in order to unlock new efficiencies and streamline operations, signaling a broader shift in how businesses manage their processes.  

Advanced technologies to meet regulatory demands 

With regulatory scrutiny intensifying, banks are leveraging advanced technologies like AI and machine learning, to strengthen fraud detection, optimize compliance workflows, and enhance real-time monitoring capabilities. 

Quantum computing, though still in its early stages, is being explored for its potential to revolutionize financial crime prevention. By enabling more precise and efficient detection and mitigation of complex fraudulent activities, quantum computing could transform how financial institutions approach compliance and risk management.  

Currently banks like JP Morgan and Chase, the Bank of Japan, HSBC and BNP Paribas. have already invested in firms developing quantum computing capabilities.  

Financial crime and compliance services: the power of integration 

The convergence of Operations, Technology, and Advisory is transforming the financial crime and compliance services business. By integrating robust operational frameworks, advanced technologies such as AI and blockchain, and strategic advisory expertise, BFSI firms can deliver comprehensive solutions to combat financial crime. 

This synergy enhances risk detection and mitigation while ensuring compliance with increasingly complex regulatory requirements. It also positions service providers as critical partners in fostering trust, innovation, and resilience within the financial ecosystem. 

For example, AI-driven solutions are being used to analyze massive datasets in real time, identifying anomalies that could signal fraudulent activity. Blockchain technology is also being adopted to create secure, immutable transaction records, further strengthening compliance measures. 

The path forward for BFS in 2025 

As the BFS sector continues its journey into 2025, the focus remains on balancing innovation with resilience. Modernization, cybersecurity, gen AI, and financial crime compliance will be critical investment areas, helping organizations navigate challenges and seize opportunities. 

By embracing advanced technologies and fostering strategic collaborations, BFS organizations can future proof their operations, enhance customer experiences, and position themselves for sustained growth in an increasingly competitive landscape. 

The road ahead is filled with both challenges and opportunities, but one thing is certain: the BFS sector is poised to thrive through connected, intelligent, and real-time solutions that redefine the financial ecosystem. 

If you found this blog interesting, check out our blog focusing on Agentic Artificial Intelligence (AI): The Next Growth Frontier – Can It Drive Business Success For Banking & Financial Services (BFS) Enterprises? | Blog – Everest Group, which delves deeper into another topic relating to the BFSI service line. 

To discuss these 2025 predictions and other insights from our research on current and future BFSI trends and evolutions, please reach out to Ronak Doshi (ronak.doshi@everestgrp.com), Pranati Dave (pranati.dave@everestgrp.com), Suman Upardrasta (suman.upardrasta@everestgrp.com) and Srawesh Subba (srawesh.subba@everestgrp.com)