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With the pandemic as the turning point, Buy Now Pay Later is gradually emerging as the most preferred payment option at the time of checkout, with an increased number of GenZ customers moving away from cash and credit cards. Rather than being a pure digital payments option, Buy Now Pay Later has also assumed the added avatar of being a checkout lending strategy being adopted by reputed merchants as a means to build brand loyalty and offer specialized benefits to a select community of valued customers. BNPL’s expanding footprint in Australia is one such example with 30% of adults or 5.8Mn users mentioning that they have more than one BNPL account across merchants. In Latin America, too, it is estimated that 60-80% of all e-commerce transactions are completed through installments-based payments. Post-adoption of BNPL, certain merchants saw a 30% jump in average order value.
BNPL is a broad term that brings within its ambit multiple payment options with a single underlying concept i.e. enabling payments in installments for buyers with an interest-free tenure, which is collected on a monthly basis by the vendor or the BNPL player. The tenure of installments could vary between 3 months to 12 months.
From one perspective, BNPL is supporting a more egalitarian system by enabling immediate affordability for purchases without an upfront full payment. For consumers, the best part is that they receive the orders without the products being withheld until full payment is received. For merchants, by adopting this mode of consumer financing, operations are turning out to be more efficient. Plus in most cases, merchants receive the payment upfront from the BNPL platform in return for a fee.
2. Occasion-driven surge
Another aspect of BNPL is its surge in usage especially during clearance sales or festive sales like Diwali, Cyber Monday, Black Friday, etc. For example, during one such period, a particular global BNPL player witnessed transactions to the tune of $1Mn daily in underlying merchant transactions in the US.
Global BNPL models that are defining the industry
We shall look at the broad categories of BNPL offerings that are available globally, including Simpl’s innovative offerings:
1. The Simpl model
Simpl is a pioneer in the Buy Now Pay Later segment in India, with over 4500+ partnerships with leading merchants and over 7 Mn users. Our mobile-first platform offers instant account approval and allows users to pay for online purchases with one tap. All online expenses are consolidated in the Simpl account and the balance needs to be paid every 15 days. Simpl witnessed an uptick in daily essential transactions last year by a whopping 50% compared to pre-Covid levels through online orders. We also saw an increase of 1.5X in the average ticket size in 2020.
2. Spilt repayment system
Under this, the buyer can settle the bill to the BNPL player in convenient installments. Simpl’s Pay in 3, enables customers to conveniently split purchase repayments into 3 easily manageable installments. For more details, please visit: https://www.getsimpl.com/
3. Merchant-focused business model
Some BNPL fintechs prefer to keep merchants at the core of their offerings under a B2B model. They offer installment payment solutions with the goal to improve service delivery with prompt repayments made to partner merchants who in turn enable customers to avail BNPL payment modes.
4. Customer-focused business model
Some BNPL players follow a more customer-centric B2C model by offering credit lending facilities through customized payment plans to fund big-ticket online purchases. For example, an Asia-based BNPL player enables purchases to the tune of $2200.
5. Instalment Loans arrangement
This works along similar lines to a personal loan. Under this, the customer would opt to pay for an online buy via the installment loan by applying at the time of checkout. The BNPL player would deploy advanced ML tools and a credit scoring mechanism to instantly decide upon whether to approve the credit. The loan is then to be repaid in flexible installments over a pre-decided tenure.
6. Pay As per Invoice
Under this model, the BNPL player provides a cumulative bill for purchases made across multiple partner merchant platforms to the customer which needs to be cleared within 14 days. The BNPL fintech immediately pays the merchant and collects the payment from the customer. The customer may opt to convert the repayment into an installment loan.
7. Approved Credit facility
Under this, the customer needs to directly approach and apply for a credit line from digital wallet companies. Each time the decision to provide credit is evaluated and made. There is no pre-alliance with specific merchants or categories. Instead of a pre-funded wallet, the customer can avail credit based on their creditworthiness.
8. Transact with the end-customer
Under this model, the BNPL works closely with the end customer. After setting up an account with the BNPL player, the customer opts for the BNPL and completes the transaction at the time of checkout by providing the email and mobile number. The amount towards the purchases is fully paid to the merchant and an invoice is sent to the customer. The customer needs to settle the bill within 14 days or convert the outstanding amount payable into an installment option. The credit risk lies entirely with the BNPL provider
9. Transact with the merchants
Under this model, the BNPL fintech works closely with the partner merchants. In fact, the merchants recommend which customers they would prefer to offer the BNPL payment option. The customer opts for BNPL at the time of checkout. The BNPL player conducts a ‘soft’ credit check i.e. without impacting the credit score. In return for fees from the merchant, the amount of the purchase is fully paid to the merchant and the credit amount is recovered from the customer. The credit risk falls in the hands of the BNPL player.
10. Credit card partnership
Some BNPL players allow customers to negotiate payment plans via their existing credit cards, without charging any extra fees or interest. The credit risk is borne by the credit card company.
The cornerstone of a successful Buy now, pay later FinTech is robust credit risk management, aided by superior underwriting and a strong technology-enabled credit decision-making system that eliminates human bias and errors. Backed by powerful risk management strategies, Simpl makes use of 360-degree data analytics, Machine Learning tools, risk scoring techniques, advanced modeling and decision automation mechanism to mitigate credit default risk. All of this enables us to promptly approve or decline credit and constantly keep pace with the evolving risk conditions for each customer profile.