How to Use Banking Partners for Buy-Now-Pay Later Offerings
Banks have come to understand the advantages that the Buy Now Pay Later model offers as a result of an analysis of consumer behavior patterns and payment preferences. Despite its limitations, the Buy now pay later (BNPL) model is rapidly assisting banks in growing their clientele, particularly among financially stressed Millennials and members of Generation Z, many of whom do not have credit cards or credit scores. Let’s examine how this model functions and how it may help banks and consumers.
What does Buy Now, Pay Later Mean?
Buy now, pay later is an example of a loan installment arrangement. It breaks up your purchase into many equal installments, the first of which is payable at checkout. Until your item is fully paid for, the subsequent installments are invoiced to your debit or credit card.
However, these plans may include interest and fees, while some plans may not, depending on the supplier. E-commerce retailers frequently offer to Buy now pay later payment plans. Moreover, many of them are also offered in-store.
How does BNPL Generate Revenue?
Customers and suppliers both provide revenue to Buy now pay later. If a consumer utilizes the buy now pay later facility, suppliers must pay to buy now pay later facilities a charge that might range from 2% to 8% of the purchase price. If the seller is able to enhance conversion or traffic, BNPL participants may also profit by securing their positions through different marketing or promotional expenditures.
Customers are charged interest by Buy now pay later players that range from 10% to 30% depending on their credit score, payback term, etc. No interest will be applied as long as the money is paid back on schedule.
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There are some clients, though, who might not be able to pay back the money by the deadline, after which a late fee is assessed. The BNPL company’s income is increased by the payment of late fees.
How are BNPL Solutions Integrated into Banks?
In essence, there are two methods for banks to participate in the BNPL value chain:
Starting with the most apparent option, banks can join a multi-lender marketplace for pay-later systems as backend partners. They are able to diversify their books as a result of this without having to actively engage in service management and end-consumer interactions.
As an alternative, banks can work with BNPL solution providers to give their clients the option to pay later. In this scenario, banks serve as both the business that interacts with customers and the supplier of the financial infrastructure, with the BNPL tech provider serving as an add-on servicer. As a result, banks may provide clients the option to pay later while using their current debit and credit cards for a variety of shopping trips.
Banks may also offer one-time use virtual cards designed expressly for a pay-later transaction lifecycle. In return, this will give customers an extra degree of protection while conducting business online.
Strategies for BNPL for Banks
Banks are now experimenting with a variety of strategies in an effort to seize the potential presented by BNPL. Whereas some companies are developing models that enable them to function in the shadows of BNPL bids or are utilizing other players to produce distinct offerings, others are delivering one-to-one models with certain merchants.
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In the BNPL space, banks may improve their prospects of success in a number of ways:
- Be goal-oriented: Banks are excellent at performing the “responsible financer” function. By regulating their total limit and exposure, they may ascertain what each consumer can pay, educate them, and assist them in avoiding overspending. Banks will have a chance to stand apart thanks to regulators’ oversight over companies that offer BNPL.
- Apply a holistic management strategy: By managing the merchant’s acquirer and card issuer businesses holistically, banks will be able to manage a combined P&L for the two companies and execute related marketing campaigns. In terms of retail banking, BNPL is likely to result in higher levels of borrowing and spending, while in terms of commercial banking, it often results in the inclusion of new services centered around cash management.
- Increase customer loyalty and personalization by proactively developing offers and controlling real-time customization for both in-person and online sales. Clients will select the most tailored and pertinent offer when there are several offers available at the checkout. At the time of purchase, banks will be compelled to be relevant and contextual.
A virtual merchant ecosystem that revolves around the BNPL supplier develops as a result of BNPL. Due to the amount of consumer interest created by this, retailers become more devoted to the supplier of BNPL.
What are the Advantages of the Buy Now Pay Later?
The advantages of Buy Now Pay Later for clients are obvious. Buy now pay later offers almost fast approval with fewer lending limits, whereas credit cards have a tougher approval procedure and higher costs. Services offering “buy now, pay later” have low or no rate of interest and just do a soft credit check that has no influence on the user’s credit score.
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1. It is available to a Variety of Clients.
Clients may complete checkout even when they are awaiting this month’s income thanks to the availability of more flexible payment options. Additionally, customers may still get loans despite having less-than-perfect credit, which can increase sales for your company. As a result of being more inclusive, it improves conversion rates.
2. It may Assist in Bringing in New Clients.
By accepting Buy now pay later, you could increase the appeal of your company to potential new clients. Consider including a BNPL service in your checkout process if you want to draw in a younger customer base.
3. It Motivates Consumers to Buy More Expensive Things.
Consumers are more inclined to buy a high-value purchase when they can stretch the expense out over time.
Parting Shot
Providing Buy Now Pay Later as a payment option has a lot of benefits. It invites new clients to the banks while enticing them to buy more expensive items. Before committing, think about how you’ll incorporate Buy now pay later into your current point-of-sale systems. Also, it is critical to think of which model of BNPL works for different financial systems.
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