Why it matters:

  • About 53% of SMBs report that they lack readily available financing sources, according to a PYMNTS.com report.
  • Meanwhile buy now, pay later (BNPL) payment options have shown growing appeal, particularly among millennials and Gen Z. At the same time, AI will interact directly with all customers in the next two years to boost service and convenience.
  • Financial services firms are leaning into these market demands to unlock business opportunities: Mastercard’s Open Banking platform aims to ease SMBs’ access to capital; Affirm is building on the popularity of BNPL payments; and Klarna is tapping AI to solve customer service disputes and drive cost savings.

Financial services firms Mastercard, Affirm, and Klarna are investing in solutions designed to benefit businesses large and small in 2024 — from delivering personalized service via artificial intelligence to tapping into the popularity of the modern-day version of layaway: buy now, pay later payment platforms.

Executives from these companies spoke with CO— about their priorities for growth, and how they reflect evolving consumer and business dynamics in the marketplace.

 Headshot of Silvana Hernandez, Executive Vice President, Product and Engineering, Mastercard.
Silvana Hernandez, Executive Vice President, Product and Engineering, Mastercard. — Mastercard

Mastercard eyes growth via platform to help SMBs access capital

Access to capital is a critical issue for small -and medium-sized businesses (SMBs), which often struggle to secure the financial backing they need to fuel their growth. About 53% of SMBs report that they lack readily available financing sources, according to a PYMNTS.com report.

Mastercard is counting on its Open Banking platform to open more doors for these companies. The new platform allows businesses and consumers to share their financial data with third parties that provide financial services.

“We are really excited about Open Banking and the growth opportunity of Open Banking, because it leverages the power of the digital economy, which we have been seeing growing, especially during and after COVID,” said Silvana Hernandez, Executive Vice President, Product and Engineering, Mastercard.

Obtaining financing can be a tricky obstacle for entrepreneurs, she said. Applying for loans has long been a manual process that requires significant time and energy. Small business owners need to dig up data points to provide to lenders, but the numbers they supply don’t necessarily convey a company’s true financial strength, she explained.

“These data points do not really fully tell the story of a small business’s ability to repay a loan,” Hernandez said. “[The process] doesn’t enable access to capital in the right way, with the right terms, and in the right time.”

A recent Mastercard survey found that 85% of small businesses see this as a pain point in their access to financial services.

Open Banking, she said, makes the experience easier for small businesses, and at the same time provides the lender with a more holistic financial overview of the company, including insights around cash flow and other trends that could impact the business’s ability to repay a loan.

Open Banking also facilitates data analytics, Hernandez said. By applying AI and machine learning to the shared small business data that it has access to, Mastercard can provide predictive insights. These can help detect instances of fraud, for example.

Mastercard continues to identify and scale use cases for Open Banking, such as enabling customers to pay bills more quickly, as opposed to the three days or so it can take Automated Clearing House (ACH) payments.

In fact, a recent Deloitte report predicts that real-time payments could replace between $2.7 trillion and $4.1 trillion in ACH and check-based B2B payments in the United States in 2024.

[Read: Future Shop: Retail Innovations That Will Change How Consumers Spend in 2024 and Beyond]

 Headshot of Vishal Kapoor, Head of Product and Vice President of Product Management at Affirm.
Vishal Kapoor, Head of Product and Vice President of Product Management at Affirm. — Affirm

Affirm capitalizes on popularity of BNPL payments via retail, travel and B2B expansion

As consumers increasingly adopt buy now, pay later (BNPL) payment solutions, financial services disruptor Affirm is seeking to provide the capability to more retailers, Vishal Kapoor, Head of Product and Vice President of Product Management at Affirm, told CO—.

One way it is seeking to do that is through the expansion of the Affirm Card, which is available both as a digital payment platform and a physical debit card and allows users to either pay over time or pay in installments. The cards were created to meet consumer demand for Affirm’s BNPL services at more locations, said Kapoor. Customers at retailers such as Amazon and Walmart have been enthusiastic about using Affirm, he said, and these customers have indicated to the company that they wanted to be able to use it at more retail venues.

Early results were promising, he said. With more than 300,000 active users as of late last year, consumers using the card were spending nine times more in retail stores compared to those using traditional Affirm products, Kapoor said.

“We couldn’t be more excited about where it is heading in terms of product-market fit, in terms of volume, and in terms of customer delight and experience,” he said.

BNPL has shown growing appeal, particularly among young consumers. Millennials (16%) and Gen Z (17%) were four times as likely as baby boomers (4%) to ask for varied payment options like BNPL or store credit cards, according to a recent report from Bread Financial. It is also growing as a payment method for e-commerce purchases, according to data from Adobe, which found that BNPL usage for online shopping was up 14% in the 2023 holiday online season, hitting $16.6 billion.

Expanding Affirm’s availability in new industries, such as travel, is also on the company’s radar this year. Affirm recently began partnering with online travel platforms Booking Holdings parent of Booking.com and Kayak, among others — in 2023, and has partnerships with several airline companies.

Other new areas where Affirm is expanding include the B2B space, as exemplified by the company’s recent partnership with Amazon Business that allows small enterprises to use Affirm for their business purchases.

“On both the consumer side and the business side, we have a network that is growing, and is healthy in terms of credit outcomes and per-unit economics,” he said.

Industry observers predict ongoing growth for BNPL platforms such as Affirm. A recent eMarketer report forecasted that 93 million people will spend $81 billion using BNPL in 2024, versus 82 million people who spent about $72 billion in 2023.

[Read: Trend Forecasters on Four Key Consumer Trends Set to Impact Business in 2024]

Klarna: ‘AI has led to millions of dollars in efficiency savings, and we’re just getting started’

Financial services platform Klarna is bullish on the potential of AI in its business, and generative AI in particular, said Martin Elwin, Head of AI for BNPL payment platform Klarna. For example, AI is helping its customers solve disputes with merchants.

A recently launched solution within Klarna’s customer services operations is saving over 60,000 hours annually, which has made solving merchant disputes much more efficient, according to Elwin.

“This successful integration of AI across multiple areas of the company has already led to millions of dollars in efficiency savings, and we’re just getting started,” he said.

The company’s efforts come as 85% of executives say generative AI will interact directly with customers in the next two years, according to IBM research.

This successful integration of AI across multiple areas of the company has already led to millions of dollars in efficiency savings, and we’re just getting started.

Martin Elwin, Head of AI, Klarna

Klarna has collaborated with generative AI platform OpenAI on a ChatGPT plug-in solution and has incorporated AI into the Klarna app to help consumers find products suited to their needs. Klarna has also deployed AI in its customer service to make it easier and quicker for consumers to get support.

AI presents growth and efficiency opportunities throughout Klarna’s operations, said Elwin.

“Klarna aspires to become a digital financial assistant that genuinely cares about the best interests of consumers, helping them save time, money, and worry.”

Klarna is committed to using AI to create highly personalized and relevant shopping and payments experiences that reflect each consumer’s preferences, with the trust that these customers have around the use of their data, said Elwin.

He noted that AI, and generative AI in particular, is still a maturing phenomenon, as the technology, and government regulations surrounding its use, are both continuing to evolve.

“The way we handle this is by setting a bar for ourselves higher than expected regulations, as well as ensuring that we invest in discovering, evaluating, and applying the latest capabilities that are hitting the market,” he said.

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