Given that the BNPL providers have exposures towards the same segment, similar business models and fund themselves in a similar way, they are to some extent indirectly interconnected and could therefore be perceived as a collective. This interconnection between the providers is largely based the similar manner in which they fund themselves. In particular, they use deposits guaranteed by deposit insurance schemes both in Sweden and outside Sweden, especially deposits that can be assumed to be more volatile as they are to a significant extent liquid and, at the same time, more price-sensitive than, for example, the deposits of the major Swedish banks.

Should depositor or investor confidence in one of the BNPL providers be damaged, there is a risk that confidence in one or more of the others would also be affected. This contributes to a higher risk of a bank run in which depositors quickly withdraw their money from the BNPL providers. Problems among the BNPL providers could also affect confidence in other Swedish banks in certain situations, although this is more context-dependent. This indirect link between BNPL providers thus poses a risk to the financial system as a whole, although it is difficult to assess the severity of this risk.

BNPL providers are dependent on deposits for funding

During the spring 2023 banking sector turbulence, the risks of a high dependence on deposits as a source of funding were highlighted – especially in cases where deposits are not guaranteed or where they are concentrated in a particular sector. All of the Swedish BNPL providers are dependent on deposits as a source of funding (see Diagram 11). These deposits come mainly from households and are thus largely deposit-guaranteed. Deposits account for at least 65 per cent of the BNPL providers’ assets, compared to 44 per cent for the major Swedish banks. For most BNPL providers, the share of deposits amounts to more than 75 per cent of their total assets, and this share increased between 2021 and 2022, probably due to rising costs for market funding compared to costs for deposits.^[42] The average share of deposits in the funding mix increased from 71 per cent in 2021 to 78 per cent in 2022 for the six banks.

Figure 11. BNPL providers are dependent on deposits as a source of funding Deposits/Total assets, per cent

The fact that BNPL providers have such a large dependence on one single source of funding is a potential weakness if confidence in them were to be affected in some way. Either for an individual provider, or the group as a whole, if confidence problems regarding one of them spread to others. Such contagion effects are more likely to happen between the BNPL providers, given that they have similar risk profiles and are to some extent active on the same markets. On the other hand, there is a risk that confidence in other Swedish banks could also be affected.

That the dependence on deposits can be a weakness becomes particularly evident when one takes into account that, to a large extent, the BNPL providers have customers with only one or a few products in their banking activities; this increases the risk of the customer moving their savings compared to a universal bank whose customers are typically more sluggish because they have several products at the bank, such as a current account, pension savings and mortgage.

In addition, the BNPL providers attract deposits with a higher savings rate compared to the major Swedish banks, that is, their deposits are more price sensitive. Because of this, the BNPL providers’ cost for deposits also tends to be higher than, for example, that of the major banks. This tendency is even more pronounced in the current environment where deposits are declining and competition for them is increasing.^[43] See, for example, the Riksbank, Financial Stability Report 2023:1 or Nordic Credit Rating, “Nordic consumer banks’ loss provisions remain elevated”, 28 June 2023 The more price-sensitive nature of deposits in BNPL providers means that more active customers typically choose to save their money in accounts with these banks, which contributes to higher risks as they tend to be more volatile customers.

In July 2023, BNPL providers offered an average savings rate of 3.3 per cent for short-term savings, while the interest rate offered by the major Swedish banks was 1.8 per cent.^[44] Based on information on banks’ websites on 4 July 2023.

On the other hand, there are various aspects that contribute to reducing the risks associated with the dependence of the BNPL providers on deposits. As mentioned, most of their deposits are deposit-guaranteed deposits from households. BNPL providers’ deposits could thus be assumed to be less volatile than, for example, unguaranteed household deposits. In turn, the fact that deposits are largely deposit-guaranteed means that most of the deposits are below SEK 1.05 million per customer (the deposit-guaranteed amount) and thus they do not have large counterparty concentrations. In addition, most of the deposits come from households, which means that they do not have large concentrations against individual sectors. A significant share of the BNPL providers deposits are also fixed term and therefore harder to move than if they would have been overnight deposits.

Several of the BNPL providers are also dependent on deposits from outside Sweden

In addition to being dependent on deposits as the primary source of financing, several of the BNPL providers have a high proportion of their euro deposits from the German market (see Diagram 12). One reason given by the provides for choosing to accept deposits in Germany is that they see it as a well-developed market for euro deposits, for example compared with Finland, where some of the participants have lending activities. Since deposit rates are lower in Germany than in Sweden, there is probably also a cost aspect to their choice to borrow from Germany.^[46] Based on ECB data for June 2023, deposit rates to Swedish households at 1-year and 1-2 year maturities were 0.7-0.8 percentage points higher than to German households, while French households received similar savings rates to Swedish households.

Figure 12. The geographical distribution of deposits held by the BNPL providers Per cent

However, most of the BNPL providers do not collect the deposits on their own in Germany. Instead, they do so via one and the same deposit marketplace, which could contribute to risks. Since savers using deposit marketplaces typically look for the highest savings rate and can easily switch accounts, it seems likely that they have a higher volatility among their savers than banks that receive deposits directly from their customers in Sweden.

However, this higher volatility is counteracted, to a certain degree, by most of the savings accounts offered by Swedish banks via deposit marketplaces outside Sweden being fixed-rate accounts where the money is often locked for at least six months and cannot be withdrawn in advance.^[47] In Germany, it is customary that money on fixed-rate accounts cannot be withdrawn during the remaining maturity, for example, see more on the BaFin website (link). This should reduce volatility in the short term. This is also supported by a report from S&P Global Ratings, which argues that banks’ deposits can have a high resilience in times of stress even if the bank is on a deposit marketplace, provided that deposits have longer maturities and that the possibilities for early withdrawals are limited.^[48] See S&P Global Ratings (2021) (link).

However, the risk of contagion effects in the event of confidence problems remains. This is to say that a situation could arise in which a decrease in confidence in one BNPL provider spreads to the others due to a general fear of similar Swedish banks on the deposit platform. Such a process could be exacerbated by the tendency to favour the domestic market in times of financial stress.