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Reinventing BNPL

Over the past 3 to 4 years, we have seen the Buy Now Pay Later (BNPL) segment grow exponentially. But, typical to most growing businesses, this segment is also facing some challenges like: -

a. Increasing Regulatory scrutiny w.r.t source of funds and given that BNPL has often operated in a grey zone.

b. Allegations of lack of transparency and various arbitrary charges.

c. Collection issues / Delinquencies faced by the segment. Accentuated by Pandemic and also because of the ease with which BNPL products are available to the New to Credit Segment. This raises issues w.r.t viability of the business model.

d. Lack of clarity in proper use of alternative data being collected.

e. Customer Harassment and complaints on the above. Tarnishing image of the segment.

While all the above surely needs to be addressed, and will be, this segment still retains its charm, as it is a digital native product. I had raised this and much more in some of my earlier posts on BNPL.

So, while I remain upbeat about the prospects of BNPL Product. I feel the following aspects will propel the product towards much wider acceptance and growth.

a. Most BNPL products have typically been tied to merchants, this is fine, but we need to have these products tied to customers also like a credit line being extended (become more like credit cards). This is usually done in stages with BNPL, and also merchants and banks can extend such credit lines. This has already started happening, where some banks and online platforms are extending such pay later credit lines to their customers. We can also have a subvention mechanism on top of the credit lines, which is determined and accepted by merchants at the POS. So, based on demand / supply, market conditions, negotiation / discussion with customers, the merchant can agree to a subvention % and this will impact the Pay later installments. Today most subventions are pre agreed deals between merchant / producer & BNPL / Financier.

b. A merchant-based capability to flag repeat and reliable customers (especially first timers). This will help check delinquencies and get a quality portfolio. This is more so for medium and small size merchants. For large / Mega merchants it makes sense to have their own BNPL program.

c. Most BNPL products are like equated instalments, which are driven by 0% interest & funded by subvention from Merchant. One should start charging the same albeit transparently.

d. Emphasise on BNPL more as a financial planning & Managing tool / Journey, rather than just being a check out option. I had earlier also talked of having a reverse product called Pay Now Buy Later (PNBL) which makes for good financial planning, discipline, and is also a more sustainable option. Many features and capabilities can be added here.

e. A centralised identity system and merchant driven risk profiling of customers will definitely help. Also, if a person is part of Loyalty programs, frequent spender, bill payment etc. these are good available alternate sources (However, subject to customer consent and regulations). Other options / sources can be use of Account Aggregation & Verified sources of document (Like an online digital locker). Using such data can reduce a lot of friction and bring efficiency to the system.

f. BNPL should be tightly linked to wallets and linked with capabilities like QR code. The moment one scans a product, one will know what BNPL options are available on the product and the customer can add to his physical cart, especially during offline store journeys.

g. A BNPL technology platform with Producers, Merchants, Banks / Financiers / BNPL, Wallets & Customers must be created, where one can choose various combinations of partnerships and enable BNPL across various modes and structures. Sounds Familiar!

Though some of the aspects mentioned are already happening, it is more important to make it as frictionless and wedded to the customer’s journey and the emerging digital ecosystem. Such an approach & thought process is propagated by “3F: Future Fintech Framework”, which helps in creating engaging user journeys for your products & solutions and make them digitally native and acceptable to the ecosystem.


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Kartik Swaminathan

Kartik Swaminathan

Author - 3F: Future Fintech Framework & Founder

Fintastech (Fintech Consulting & Coaching)

Member since

29 Sep 2014


Navi Mumbai, India

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