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The global Buy-now, pay-later (BNPL) market is estimated to reach $20.40 billion by 2028. It is a seamless, convenient and affordable payment method for the end-customer, that also allows sellers to boost customer retention, conversions rates, and ultimately, sales and revenue. For B2B businesses, BNPL can act as credit right at the time of need.
Before jumping onto the BNPL bandwagon, businesses must consider aspects ranging from regulatory to technological. But before they partner with a BNPL provider, sellers must answer one question:
Is BNPL right for your business?
Businesses must assess the feasibility and long-term business value BNPL holds for them. The following parameters can help create a checklist for new-to-BNPL businesses::
A number of BNPL financing providers will have a predetermined price limit, or goods that will not be eligible for a deferred payment option. Such providers are typically looking to roll out credit lines for big-ticket purchases. Businesses dealing with expensive core products can look at onboarding BNPL as a payment method, making big-ticket purchases viable for a wider variety of customers.
Costs to merchants
Just like credit cards, a lender powering BNPL makes money by charging fees and commissions from end-customers and businesses. It is crucial to factor these overhead costs in offering BNPL. Businesses must also bear in mind that some BNPL providers may charge customers interest, late payment penalties and may resort to predatory collection practices that could turn customers away.
Solution to improve customer retention
With BNPL, the affordability of a product increases for the end-customer. This in turn leads to higher checkout rates, increased order value and lower instances of cart abandonment. This can help businesses boost their net promoter score, make the customer journey seamless and ensure enhanced customer loyalty. However, it is advisable to see if the transacting platform does not have underlying issues that are hindering customer experience - or else BNPL will not accrue significant benefits either.
The regulatory environment around BNPL remains ambiguous. BNPL offerings are subject to several authorities such as the Reserve Bank of India (RBI) and digital marketplaces like Google. Google Play, for example, updated its policy for personal loan apps and those connecting customers to lenders to be marked under the ‘Finance’ category.
Earlier this year, the RBI set up a working group to monitor the standards and penetration of outsourced digital lending activities, suggest regulatory changes aimed at promoting growth of digital lending, and identify the risks of unregulated digital lending.
Onboarding a BNPL offering will require businesses to keep a close watch on developments in the space - especially from a regulation standpoint.
The Reserve Bank of India Act, 1934 describes non-banking financial companies (NBFCs) as businesses that are concerned with financing by way of extending loans or through other activities. There is a possibility that regulations in the future will require BNPL providers to be registered as NBFCs.
The Payment and Settlement Systems Act, 2007 concerns the governance of payments systems the operators of which are approved by the RBI. Although the Payments Act did not preempt the use of BNPL, its similarity to credit cards may club the two into the same category for purposes of regulation. Because most FinTechs offering BNPL services tend to partner with NBFCs, they may also be considered simply as providers of tech-enabled services or intermediaries under the 2009 RBI directives.
The right fit
The future of BNPL regulation is not known. However, merchants seeking a BNPL service provider must bear in mind that the aforementioned scenarios are some possibilities that could pan out. BNPL providers that also offer other credit products may be regulated already and could be in a better position to anticipate the incoming regulation around BNPL.
Data security will be a major concern of BNPL regulation. A BNPL provider that already complies with policies and regulations around data security and user consent like the Data Empowerment and Protection Architecture (DEPA) should be the best candidate. DEPA will form the data empowerment layer of India Stack, with ‘data blind’ institutions connecting organisations that store data, individuals, and businesses. The implementation of the draft policy DEPA will ensure that user consent is in-built into the software.
BNPL banks on the efficiency of the underlying technology stack. A BNPL provider should be backed by a technology firm that guarantees:
Ease of integration
Seamless integration of the merchant's portal with the lender’s system is key. The integration should be seamless, quick and easy to understand by the seller offering the BNPL payment method.
An ideal BNPL provider will offer a system that ensures automation for the entire BNPL lifecycle. It should be able to send repayment reminders, have in-built interest and fee calculation, and automate manual processes such as repayment reminders, debt collection, failed and penalty payments and the allocation of payments and repayments.
In-built checks and verification
BNPL - a credit product – comes with a requirement to conduct KYC, ID verification, and underwriting. The motive of B2B merchants could be to offer credit to small businesses whose access to formal credit is impeded by the lack of credit histories. BNPL providers with access to open banking can easily access borrower data such as income and cash flow to approve transactions and should have robust prediction engines to support near real-time underwriting and loan processing
FinBox is a leading provider for full-stack, end-to-end technology to support lenders offer credit at the point of sale.
Through FinBox’s Embedded Credit Line, merchants seeking to offer BNPL on their platforms can get an experience that facilitates a fully managed credit line lifecycle including application, repayment and withdrawal that can be embedded into the merchant app. They can offer instant approval and activation, thanks to a fully digital process. Repayment can be done in a flexible manner whether as bullet repayment or in monthly installments over a flexible tenure.
For more on embedded finance and how BNPL can bring the customer-first mindset to your business, download our e-book.