By Harpreet Singh, Business Head- Lending and Retail Payment Products, Intellect Design Arena
According to the Global Payments Report by Worldpay from FIS- BNPL is emerging as the fastest-growing ecommerce online payment method in India, estimated to capture 9% of the total ecommerce market share by 2024. BNPL is a Point-of-Sale Micro loan that can be paid later in interest-free installments. Over the last year and a half, the BNPL proposition captured a lot of customer attention- thanks to the appealing combination of interest-free credit, zero-documentation and a seamless integration with a straightforward check-out process.
The dynamic retail payment industry has pushed Bank/ ecommerce players to abandon the transactional nature of approaches in order to migrate to a more “sticky” approach. Financial institutions are moving towards an ecosystem-based thinking as opposed to a product-driven thinking in order to become the primary engagement point for the end customer.
The system is unforgiving if businesses do not adapt, for instance, 55% of shoppers abandon a purchase if they have to re-enter their credit card or shipping information. 46% of shoppers abandon it because the discount code does not work. The power of technology-led context and connections has profoundly reinvented the customer experience ecosystem while offering the opportunity to monetize across the value chain.
Extending BNPL to the lens of an ecosystem
In the current market, a comprehensive BNPL process should consider multiple user journeys, stride across varied system modules spanning across multiple stakeholders. The balancing act between the experience paradigm and the monetization opportunity is necessary to optimize the BNPL proposition. By integrating the three core elements of consumer financing, merchant financing and merchant servicing, the BNPL ecosystem can be utilized to its maximum potential.
● Consumer Financing
For consumer financing– organizations can focus on elevating the experience by offering multiple payment options in real-time while extending self-help options for changing the repayment plan, mode or tenure during the loan life-cycle. Ensuring transparency of information of return / sale cancellation / reversal transactions while facilitating interest rate checks and online simulation of repayment plans definitely adds value. The insights gleaned from the customers’ purchase patterns can enable the banks to identify cross-selling opportunities while focusing on customer retention, thus increasing the customer lifetime value for the bank
● Merchant Servicing
Lenders/ Banks can add value to the critical merchant servicing process by providing a consolidated single view of merchant obligations, ensuring automated payouts on a periodic basis and offering comprehensive self-help options for real time enquiries and updates. They can also look at creating new revenue channels through cross selling banking services such as transaction accounts, cash management, payment services etc. and charging the e-commerce platform a fee for offering merchant services..
● Merchant Financing
Enabling seamless conversion of outstanding invoices into merchant credit for better working capital management can prove to be instrumental in elevating the experience, along with eliminating procedural delays in availing credit by avoiding repeated credit evaluation. Additionally, banks can also look to shift the risk of collections and payment delays away from the merchant by automating merchant credit and project cash flow timelines for merchants to optimize their liquidity . Thus, resulting in multiple financing opportunities from a captive set of merchants for the bank along with better margin realization through synergies from financing the entire supply chain.
By virtue of their ability to have comprehensive visibility (and be a partner) on the entire transaction lifecycle, banks are best suited to integrate the user journeys and deliver a seamless experience across the BNPL ecosystem. However, as with any upcoming trend, the BNPL ecosystem too has its own set of challenges– business margins, asset quality and rate of abandonment to name the most prominent ones. The margins are wafer thin with bankers/lenders reporting that BNPL contributes to as much as 5%-10% of NPAs, conservatively. Additionally, BNPL tends to be mostly made up of discretionary spending behaviour that is characterised by a very high product abandonment rate (on an average, 69% across).
In order to make the BNPL process work for all the stakeholders, the role of a contemporary technology platform is critical – to seamlessly operate across this broader ecosystem and stitch together user journeys while driving a regulated business process and provide the required risk-managed superior experience. A state of-the-art platform can ensure the coming together of experience, choices, touch points, lifecycle and insights – all encompassed by a connected ecosystem (marketplace), take away the vagaries of the risk factor, and allow the bank to focus on the raison d’etre of their existence – their customers.