How Banks Should Use Buy Now Pay Later To Increase Their Customer Base

Talha Tamboli | October 7, 2021

The Buy Now Pay Later (BNPL) phenomenon is gaining momentum around the world. BNPL services give consumers who do not have access to credit the ability to purchase goods and services with no deposit and to pay for goods and services over time. However, while banks, consumer credit providers and alternative credit providers will benefit from BNPL services, they also introduce challenges for financial regulators, existing providers in related markets and banks themselves.

Banks need to make sure that they are ready for a new type of competition. Larger retail banks seem to have added BNPL business to their portfolio already. Smaller banks will be forced to enter the market, either by acquiring a BNPL provider or rolling up the sleeves internally. In any case, it’s time that banks get rid of their prejudices and get on board with this consumer-friendly innovation that will ultimately benefit them by providing an influx of new customers, at least in the long run.

For a complete understanding of buy now pay later, we should first look at the traditional financing models that banks and fintechs use to lend credits. These financing technique is known as point-of-sale or POS. Let’s take a look on POS below.

 

How POS (Point-of-sale) Financing services work:

Traditional POS financing is a model that has been around for decades. Most consumers are familiar with its most basic form: pay now, pay later. With POS financing, a customer signs up for credit to buy a product, typically for a portion of its full price. Some POS financing programs require no down payment. Once the customer has made all payments, they become the owner of the goods.

POS financing works by financing the full price of the product, not a portion of the price. This means the customer pays the full purchase price of the item, plus interest. While POS financing has been popular for decades, it has faced some challenges. The payment model doesn't cater to customers who can't afford to pay the full purchase price upfront — these shoppers are often low-income or first-time-buyer customers. POS financing also requires shoppers to make large payments right away, which can be difficult for them.

“The banking “industry” is changing rapidly – almost on a daily basis. However, those changes are not affecting people as much as we may think, particularly the underserved and unbanked.”

-Steven Rosamilia, CEO at IMEX USA

How BNPL helps customers:

BNPL, or "buy now, pay later," payments enables customers to pay for their purchases over time, interest-free. BNPL payments don't appear on a customer's credit profile, so it doesn't affect their credit score. Here are some of the major points where BNPL helps customers:
  • BNPL payments give customers the ability to buy now and pay later without accruing interest. BNPL payments are typically not fixed and fluctuate based on a customer's ability to pay over time.
  • BNPL payments often appear in the form of layaway, credit extensions or installment loans.
  • BNPL payments may attract customers who want to own products but don't have the money upfront.
  • BNPL payments also work well for customers who want to spread out payments over time.


How BNPL is different than other POS lending services:

BNPL is an alternative payment technique offered by the payment service provider to businesses. Payment service providers use credit lines provided by banks and credit card companies to offer installment loans to customers.

Unlike conventional POS financing, BNPL focuses on consumers' ability to purchase a product rather than their ability to repay their loan. This is achieved by classifying consumers into different groups based on their creditworthiness and offering consumers an installment loan with payment periods that vary based on their creditworthiness. As a result, payment service providers use BNPL as a risk-based financing technique.

The payment service provider considers consumers' creditworthiness by classifying them into different consumer groups, such as "prime" consumers, "sub-prime" consumers, and "near-prime" consumers. These consumer groups are similar to credit profiles used by conventional credit card companies. With BNPL, businesses can request a payment profile classification from their business service provider.

The payment profile classification determines the installment loan payment schedule that the consumer receives. Businesses can request a payment profile classification from their business service provider. The payment profile classification determines the installment loan payment schedule that the consumer receives.

For checking your credit-worthiness before lending you BNPL, service providers may check consumer’s payment history, income, job stability, and other major factors. The financial service provider then use these factors to determine the installment loan payment schedule that the consumer receives.


What features BNPL brings to the table for Merchants:

Buy Now Pay Later is a new way to process payments. It's for young adults with shaky credit. The option lets merchants accept credit or debit cards but defer the payments.
It lets merchants offer customers a low payment schedule, typically 6 to 24 months. But it's different than payment plans. With BNPL, there's no interest, no hidden fees, and no penalties for not paying all at once.

BNPL works with all credit cards, not just Visa or MasterCard, and payments are processed securely through Authorized pages. BNPL increases conversion and sales by 20% for merchants while boosting average order value by 60%.

For customers, BNPL gives them access to the credit they otherwise wouldn't have. And for merchants, BNPL means more conversions, more sales and more repeat customers. BNPL is offered by a handful of digital storefronts, including Best Buy, Kohl's, and Walmart. But it's a new way of doing business that allows both parties to benefit from the deal (compared to 2.5 percent for a credit card transaction).


Why should Financial Institutions accept BNPL:

Amazon's Buy Now Pay Later (BNPL) program is both a blessing and a curse for retailers — a blessing as it offers them a way to boost sales by attracting shoppers who are price sensitive, and a curse because it threatens to erode bank's main business.

Amazon's BNPL program has only been around for two years, but it has already become a crucial part of the site's business model. The program gives people the option to buy products on Amazon with deferred payment terms. Customers purchase the product, but they aren't charged to agree to a 90-day payment plan until later.

While that's far less than the average credit card payment period — 25% of Americans carry credit card debt — BNPL has become popular enough with Amazon shoppers that it has shrunk Amazon's average purchase amount by $7.77, according to one report. That's a significant hit.

Amazon's BNPL program may be taking Amazon's main business, online sales, down a notch, but the banks that have issued BNPL cards aren't worried.

That's because BNPL cards, like credit cards, are financing. And financing today looks different than financing did even five years ago. Many consumers, especially Gen Z, prefer to buy with credit and postpone payments.

This shift in consumer preferences has major implications for banks. Banks issued financing to safe, creditworthy customers who wanted to buy now and pay later when credit cards were first introduced. But bank lending practices have changed over the years, and today many consumers use credit cards to finance products they might otherwise buy with cash.


How can Banks integrate BNPL in their lending services

BNPL is a fast-growing segment of the lending market. In 2015, BNPL made up 15.2% of all consumer credit originations and grew to $12.1 billion, according to the Federal Reserve Bank of New York.

BNPL's share grew from 8.4% in 2014 to 14.7% in 2015, according to Experian. A BNPL strategy allows banks to ride the wave of increased consumer debt by managing their balance sheet more aggressively. This helps stabilize revenues and boosts the profitability of loans as banks can charge higher interest rates.

While BNPL loans often come with hefty price tags, lenders can minimize their losses by structuring BNPL loans as an asset purchase rather than a loan sale. First, banks have to make sure they can fund the loans, either with their balance sheet or with funding from a non-bank lender. Second, banks have to decide whether the loan will be purchased directly or indirectly.

Cross River Bank is currently riding the BNPL trend with this model by providing Affirm with funding capacity. The model is safe as BNPL firms often purchase those loans after origination, but it also caps the potential gains banks can earn as the fee is often a small percentage of the total origination.

How can banks initiate marketing their buy now pay later services?

First, banks need to be agile and go after merchants that already have relationships with customers. Fintechs, on the other hand, must convince merchants that their service, regardless of its costs, is worth paying.

There are obviously some similarities. Both must win over merchants. But they also have different advantages. Fintechs don't have existing relationships or established customer bases, so they must build both from scratch.

Fintechs, however, have an advantage over banks in that they have the technology. In addition, fintechs can integrate their solutions into existing e-commerce systems, giving merchants an out-of-the-box, easy-to-deploy solution. This, in turn, makes fintech more attractive to merchants.

Fintechs can also target specific markets. For example, some banks sell online merchant accounts, but their service is often limited to larger merchants with more established distribution networks. Fintechs, on the other hand, can target smaller merchants, giving them an approach that's better suited to the needs of smaller businesses. Fintechs can also target specific niches. A fintech that targets small businesses, for example, could focus on those that sell high-priced goods online.

Fintechs don't have to build their distribution networks, either. Instead, they can use existing online channels like Amazon, eBay and Alibaba. Of course, fintechs can also sell directly to merchants, but this approach requires additional sales and marketing efforts.

Fintechs can also build their distribution networks. They can use a direct-to-consumer model, selling directly to their customers. This approach is best suited for fintech that is sells online merchant accounts and works for fintech that targets specific markets.


The Takeaway

BNPL programs have a critical role in financing trade and industry and financing small and medium-sized enterprises (SMEs). For this reason, BNPL programs should be an integral part of banks’ lending portfolios. Banks should optimize the utilization of BNPL programs.

At the same time, the regulatory framework for BNPL programs needs to be revised. The business models of BNPL programs should be standardized and standardized products should be available. At the same time, the regulatory framework for BNPL programs needs to be revised.


FAQs

What is buy now pay later?

Buy now pay later, as the name suggest, is an option Fintechs give you to purchase a product and pay for it after a certain amount of time. It works like a credit card payment, but it doesn’t charge you interest.

Does buy now pay later affect credit score?

No. Buy now pay later does not affect your credit score as long as you pay your dues timely. It is constructed in a way that you won’t have to worry about your credit score. However, banks may see your credit score before giving you BNPL service.

Why was I not eligible for buy now pay later?

Financial services or banks check your credit-worthiness before lending you the services of buy now pay later. They may check your payment history, income, job stability, etc. So before applying for BNPL, make sure you have a strong credit-worthiness.

What are the alternatives to buy now pay later?

You can use your credit card the same way as buy now pay later, but your interest-free days would only last till they bill you. You can also opt for interest free deals on purchases from e-commerce store.

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Article | March 1, 2022

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Slow Response Time Unlike other markets, reachability or content promotion of such a niche or complex market may take time. Role of Content in FinTech Content marketing can help FinTech brands overcome the challenges mentioned above. Brand awareness, educating the target audience, and acquiring new clientele is the primary aim of content marketing. Rolling-out relatable content and case studies can help FinTech brands to increase trust and gain new clientele. It can also help improve your credibility in the market as compared to your competitors. Sharing essential market updates, articles, and blogs can help FinTech brands demonstrate their market expertise. How to Generate Leads For Fintech Brands through Content Marketing Content marketing works as the fuel that powers your lead generation strategies, and the FinTech brands are aware of it. Both start-ups and well-established FinTech companies rely on lead generation as a part of their growth strategy. According to a research study, 80% of decision-makers gather company or market insights online—whicheases their purchase decisions. Below mentioned are the nine ways FinTech companies can generate leads through content marketing. Research – Target Audience & Keywords Your target audience description may include buying behavior, motivations, pain-points, values, budget, hobbies, and demographics. By thinking about who your audience is, you can equip yourself to reach them, engage them, and support them with the most relevant content online. FinTech is a niche market, so you create content that applies only to a small audience group. Now that you know who your target audience is, we can move to the next step, i.e., keyword research. Keyword research can help you find your target audience, searching for similar content. Using the right keywords can get your product or service the visibility it deserves and reach potential customers. For this, you need to list down the keywords that your audience may use and create your content around those keywords. Humanize Your Brand on Social Media "At the end of the day, customer-centric fin-tech solutions are going to win." – Giles Sutherland. Social media today is more than a B2C marketing tool. Social media marketing provides an opportunity for brands to increase awareness among their target audience. Connecting with your target audience on social media helps you build trust and exposure to your brand as a whole. Humans are the center of every technological advancement. Talking about humanizing your brand may involve chatbots, advanced ML, and automation. These technologies pave the way for a more transparent and customer-centric experience. Connecting with your end-user in a language they understand gives FinTech brands a competitive edge with social media. Effective ways to humanize your brand are: Engage and interact Share videos Create blogs and posts regularly Leverage data Connect with social media influencers Millennials prefer brands that connect emotionally and focus on creating more relatable content. Use simple language, avoid using technical jargon, create content that shows care and concern towards the end-user, publish case studies, host podcasts, and create marketing videos. Generate Content for Various Campaigns There are different ways for you to use content for lead generation. You need to realize that there is no one-size-fits-for-all solution for campaign content. Depending upon the market and your business's nature, one method may be more effective than the other. Once you have figured out what people want, you need to generate content that gives them what they want. Now that you have the list of keywords, start creating gated content such as articles, infographics, videos, podcasts, e-books, white papers, reports, checklists, cheat sheets, free email guides, webinars, product demos & trials, and sales materials. Writing high-quality content is the foundation of an effective lead generation campaign. To create quality content, you need a sound content strategy and a specific buyer persona in mind. Apart from creating a solid piece of content, graphs, images, quotes, and infographics lead to a more effective campaign. According to a study, 67% of customers consider clear and detailed graphics ahead of product descriptions and ratings. The best kind of content allows readers to connect with the information added. Also, the writer should present critical information early to ensure readers get to the point before they opt-out. Investing in high-quality content will pay-off in the form of successful campaigns and more leads. Here are some of the best content ideas for lead generation. Giveaway a checklist of tools or lists of resources eBooks & Free Reports Webinars Discounts & Coupons Free Trial Quizzes Mini-Courses Free Challenges Syndication of Content B2B content syndication is when digital content such as whitepapers, blogs, and videos are re-published to a third-party website. Content syndication works excellently for lead generation for a B2B company. It will give your business and content extra exposure to increase brand visibility with minimal effort that you wouldn't typically get while just hosting it on your website. Distribution of content promotion to generate new leads from prospective customers will always remain the top priority for B2B marketers. Having unique web-page content with none to little traffic on websites is wasting your idea as no one will ever read it. To this, content syndication is the answer. A landing page provides more context for the product/service featured in your ad or social media post. As the user lands on the landing page, they need to see what they get when they sign up. A landing page should exclusively focus on one specific offer by using eye-catching imagery, action-oriented copy and a clear next step. Do's Don't Minimal copy with bullet points Add too much text Security badges Add social media handles / social media share button Free aspect added to the call-to-action button Use too many jargons Add a form or call-to-action button Add links Add multiple/ big call-to-action buttons Offer non clickable phone number No points of exit Add copyright signs Add a mobile number or click-to-call Add clients, testimonials & awards Add a free preview, screenshot images, stats, and video for demonstration. Add guest photos Add guest photos Add a form or call-to-action scrolling with you Email Marketing Email marketing has been used by B2B businesses for a while now. It is one of the powerful tools for marketing and communications. According to a survey, email marketing is the most effective online tactic for lead generation. 91% of businesses prefer email marketing for demand generation. A good lead generation strategy will have lasting benefits, such as allowing you to target your desired customers and boost brand awareness. Lastly, more lead equals more customers and, ultimately, more revenue. Create a FinTech Forum The invention of the internet has erased all the geological boundaries for doing business. Local businesses can turn into potential global competitors. Online forums have enabled people to connect online based on their likes, interests, beliefs, or preferences. You can also create an online forum or online community to interact with like-minded people who can turn into customers. These online forums are of great help for businesses. They allow both your existing and potential customers to interact and discuss; while helping you trouble-shoot flaws or errors. Virtual Event - Webinars /Podcasts / Live-streaming / Guest Posts The coronavirus outbreak has changed how the world works and will work for the foreseeable future. Many companies have had to postpone or cancel their events. Lead generation is essential for generating revenue. Hosting online events such as webinars, podcasts, live-streaming, guest posts, etc. can help you build a pipeline for new leads. Organizing virtual events can offer benefits such as; Increased attendees No need to travel or make expensive hotel bookings Multilingual options can allow for simultaneous translation or subtitles while overcoming the language barrier and opening the event for global audiences. The number of attendees is limitless in an online event Easier to collect feedback and make new connections Apart from the benefits mentioned above, virtual events have added advantages such as: The target audience is already there Easier to identify specific customer behaviors You can connect with a broader audience Minimized cost Shorten the sales cycle Easier to collect important information of the attendees Deliver what the audience wants to see or know Harness the power of data Leave it out in the open (let them follow you) Virtual events, if done right, can be the best way for lead generation. Utilizing Video Content 51% of marketing agencies worldwide affirmed that video content has the best Return on Investment (ROI). Video content enables people to learn faster from the tone, expression, body language, and other visual clues in the video, apart from the content itself. Video marketing can help draw the right set of the target audience, build trust and brand awareness, hold people's attention, and capture email addresses. Applying the following video marketing skills can help you use your skills to full potential for lead generation. Gate your video content Strategically insert your CTA Make use of video on landing pages Leverage video testimonial Make use of video case study Leverage your video across multiple social media platforms Other important things to consider are – Define Your Target Audience and Produce the Right Kind of Videos for Them Decide the Correct Length for your Video Create a Series of Live Videos Collecting and Using Your Data to Channelize Lead Generation Campaigns A well-planned and well-executed data-driven lead generation campaign should look like: Know your audience >> Plan & design your campaign >> Reach out to your target audience >> Fulfil their requirements >> Capture leads >> Qualify leads >> Nurture leads >> Follow-up >> Close Having a database with accurate and frequently updated info serves as the best source to identify qualified leads and potential customers. The idea is simple, suppose you can gather data on your ideal customer's characteristics and use analytics to generate insights to carve your buyer's persona. In that case, your database will be filled with leads who are genuinely interested in your organization's products and services. Final Thoughts Content marketing is the key to promote FinTech products on various digital platforms. Ensure that the content you publish is readable and well-researched without using much industry jargon. You must master the art of storytelling. It can address the three big stumbling blocks – credibility, trust, and education. Lastly, publish a lot. Ensure that your content is available in all forms and on all the relevant platforms to reach your target audience. Frequently Asked Questions What is content marketing, and how does it work for FinTech Market? Content marketing works by offering readers informative and useful material that provides valuable insights. When done well, it can help FinTech brands raise awareness, aid in consideration between solutions, drive engagement, and drive business growth. What is trending in the FinTech market? Artificial Intelligence (AI) and Machine Learning are the trending technologies behind the growth and development of the FinTech market. How to market a FinTech brand? 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When done well, it can help FinTech brands raise awareness, aid in consideration between solutions, drive engagement, and drive business growth." } },{ "@type": "Question", "name": "WHAT IS TRENDING IN THE FINTECH MARKET?", "acceptedAnswer": { "@type": "Answer", "text": "Artificial Intelligence (AI) and Machine Learning are the trending technologies behind the growth and development of the FinTech market." } },{ "@type": "Question", "name": "HOW TO MARKET A FINTECH BRAND?", "acceptedAnswer": { "@type": "Answer", "text": "Know your target audience & keyword Humanize your brand on social media Generate content for various campaigns Syndication of Content Email Marketing Create a FinTech forum Virtual Event - Webinars /podcasts / live-streaming / Guest Posts Utilizing video content Collecting and using your data to channelize lead generation campaigns" } }] }

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