The Buy Now Pay Later (BNPL) option, also known as interest-free loans, became exceedingly popular during the Covid-19 pandemic. Reports suggest BNPL services are expected to cross USD 7000 million in 2022 in India; 22% of consumers bought goods using this option.
BNPL services are popular among the young, tech-savvy population and also those who do not have access to traditional credit options.
With growing consumer awareness and more players entering the BNPL arena, the future of BNPL in India is full of potential. Notably, technology has an integral role in driving and sustaining this expansion.
Why Is Technology Important for BNPL Services?
Businesses are offering Buy Now Pay Later services to attract purchases which customers may have avoided otherwise. E-tailers are witnessing a reduction in cart abandonment rate and a rise in the total order value, which is a testament to the popularity of BNPL services.
The idea of paying for a purchase in instalments is not entirely new. Using innovative technology like open APIs, artificial intelligence, and the cloud is the game changer with benefits like scalability, speed and integration into e-tailer platforms.
A robust technosphere that integrates the above in an intelligent, secure, data-driven and flexible way is essential for the thriving future of BNPL.
Technology And Its Impact On the Future of BNPL
Undoubtedly, the future of BNPL is highly reliant on technology. For it to grow further, it has to benefit retailers and users without compromising aspects like safety and ease of transaction. This is where Technology can aid them.
Here are ways in which technology can have a positive impact on BNPL growth:
Real-time Credit Analytics
Online shopping transactions take only a few seconds to complete, with no scope to pause for analysis or make an error. Technology can help BNPL providers gather real-time data to establish the potential buyer’s identity and assess affordability risk.
High-performance analytics is required to deliver faster and more accurate decisions. Moving from basic rule-driven interfaces to Artificial Intelligence (AI) powered decision-making will help Buy Now Pay Later players to gain a competitive advantage.
Effective analysis delivered in real-time can be the differentiator between a profitable BNPL fintech and an NPA-ridden one.
Retailer And BNPL Systems Integration
Combining in-store and online BNPL options is an ideal strategy for retailers to boost conversion rates and cart size. The future of BNPL’s success will depend on how successfully retailers and BNPL Fintechs integrate their systems to provide the user with a quick sign-up process and a simple check-out.
Cutting-edge technology will enable seamless integration with the seller’s sites to provide a superior customer experience.
Reduce Fraud In Real-Time
A rise in cyber fraud has accompanied the boom in digital transactions. Well-established and accurate systems to detect fraud in real-time are essential for customer and e-tailer safety.
A significant gap between a purchase and the first instalment payment can provide fraudsters ample time to steal data and make transactions before they get caught. Hence, early detection of fraud, ideally within seconds at the point of sale, is critical. BNPL apps employ accurate, quick and scalable fraud score algorithms that sustain a multi-layered approach.
Security and Compliance
Cyber security is paramount for all the players in the BNPL chain, especially since this sector is still in the early stage of its lifecycle. A robust security layer in the setup is essential for the safety of the lender and the customer. Measures like data encryption across the transaction chain are critical for preventing cyberattacks.
Currently, the Buy Now Pay Later space is loosely regulated in India. However, its growing popularity among consumers and fraudsters requires regulators to form stricter norms and regulations. Countries like the UK and Australia are looking at rules that impose limits around the BNPL apps to arrest growing customer debt. However, BNPL companies still need to follow strict laws related to data privacy, payment compliance and cybersecurity.
Technology platforms supporting BNPL fintechs should be able to adhere to the current regulations and have the flexibility to enable compliance with future rules with minimum disruption and time.
As the BNPL sector matures, regulations and compliance will increase and become more stringent, meeting all of which will only be possible with scalable technology.
Full BNPL Chain Automation
Advanced technology has a crucial role to play in the automation of the entire BNPL chain. All aspects of the customer lifecycle, beginning with transaction approval and going to automated reminders for payment, interest calculation, penalty payments, debt collection, and credit line management, can be automated with the use of technology.
This will help BNPL companies reduce costs and improve customer experience.
Challenges Posed By BNPL
Buy Now Pay Later offers customers a convenient option to finance products and services. At the same time, it encourages them to buy things they would have otherwise not bought.
As per a study, 47% of those surveyed indicated they had spent more than they would have if the option to Buy Now Pay Later facilities were not available. The study also revealed that 25% of users of BNPL are financially vulnerable, and one out of four from this group found it difficult to make payments.
Just as technology is essential for the growth of BNPL, it will play an integral part in the supply side by enabling better customer selection and loan management for lenders.
Lenders, retailers and other players need a synergetic partnership with BNPL apps for a personalised and hassle-free customer experience.
Technology will play a crucial part in delivering a superior customer experience and aid BNPL Fintech to stay profitable, reduce fraud and adhere to regulations. Innovative products that leverage technology will enable Fintech companies to make informed decisions that aid growth and profitability. An elastic and strong technological base will spur and sustain BNPL growth.
For example, Finezza is one such Loan Origination and Loan Management Software that offers a suite of products that accurately analyse an applicant’s financial transactions, provide comprehensive loan management and streamline delinquency management. It will help lenders make data-driven intelligent decisions about which customers to lend to and manage loans better.