An In-depth Look into BNPL: How Lenders Can Benefit from It?

Armada Labs explores the phenomenon behind the “Buy now, pay later” lending option, including its benefits, adoption challenges, and the action guide to implementation.

BNPL is the abbreviation for “Buy now, pay later”, or lending services at the point of sale. Surprisingly, it’s the most popular among the Millennials and Gen Z population who tend to look for interest-free, flexible financing (not in the least due to the exacerbated financial situation after COVID-19).  

Currently, consumer lending transcends traditional instalment loans. Consumers and, consequently, lenders appeal to fintech that offers the flexibility both need. Point-of-sale financing is one of these flexible options.

As a result, last summer, the number of BNPL-friendly startups skyrocketed.

Why BNPL?

This point-of-sale lending option benefits your business in at least three of the following ways.

It Raises Brand Awareness and Attracts New Clients

At this point, you should take care to guarantee a seamless consumer journey for your part to acquire a new audience, primarily those with high credit scores.

It Causes the Increased Usage of Digital Wallets

Thanks to the broader choice of flexible payment options, consumers may now originate debit and credit more often than before, and via BNPL, as well. For many, BNPL is the main incentive to use digital wallets since it allows making more purchases at a time.  

It Creates More Touchpoints with Consumers

With BNPL, you can provide consumers with the value they want at the right time and place. Specifically, you can “meet” them at the point of sale (which is almost the ending point of their journey) with seamless payment options for the product they chose to buy.

Apart from Flexibility, Why Do Consumers Choose BNPL?

According to Citizens Financial Group’s research, 76% of consumers would prefer making purchases at the point of sale, provided that they are offered an affordable payment option. In today’s reality, BNPL is a necessity for consumers rather than a whim.

Consequently, BNPL presents a real competition for credit cards and other payments. Consumers open credit when they need to buy something, but offer them to get the item right away with a meticulously crafted payment plan instead of getting a credit card — and they grab this option without giving it a second thought. It more fulfils their initial goal, which is simple: get the item asap.

We see that BNPL is nothing new; rather, it’s a new implementation of the old idea. But ways to implement this idea in the “novel fashion” will vary over time as both fintech startups and traditional lenders come up with competitive POS lending offers.

Yet, implementing BNPL goes with a challenge, and further, we will find out what these are.

Two Challenges to Meet when Implementing BNPL

Challenges may expect you along the way of implementation, from devising a strategy to performance and further growth.

Errors may be too costly

When offering consumers the BNPL option at the point of sale, you inevitably deal with a bank provider that holds on to a specific standard of a consumer product. Think of products of such “premium” brands as Amazon and Apple; there is no room for mistakes when you’re dealing with these two. These branded products require creating a seamless user experience across all the utilized channels.   

Entrance Barriers

Partnerships with lenders are, perhaps, the easiest entrance barrier to overcome when adopting BNPL. However, it affects the resulting conversion rates depending on the level of integration. For example, integration through the consumer journey may bring an approximately 2-3x payoff compared to checkout’s minimal integration level. Robust integration across online retail channels is as important for operational success as partnerships with established lenders. 

White Label vs. Custom BNPL: Which One is Better?    

Currently, one may differentiate at least two types of BNPL implementations: while-label integrations with existing lending platforms and custom point-of-sale lending solutions.

If you decide to operate white label, you will diversify your loan portfolio with BNPL quicker. In this way, Synovus Bank, Regions Bank, and Fifth Third Bank made quick achievements.

At any rate, the payoff may be greater, and this is what comes with implementing a custom BNPL solution. When Citizens Bank collaborated with Apple to upgrade its financing program with the iPhone, it disrupted the industry and gained trust to Citizens as masses grew aware of the brand and turned loyal to it over time.    

Whichever option you choose, make sure you build a unique strategy — only this way can you achieve their trust, loyalty and grow their lifetime value with you. In contrast with traditional loan seekers, consumers literally “come across” BNPL rather than choosing it deliberately. In particular, they find this option when looking for a retailer who turns out to be in a partnership with a BNPL provider. Most likely, you will find these consumers upon behavioural segmentation by purchasing habits.