The rise in consumers using Buy Now, Pay Later (BNPL) solutions has led to the rapid expansion in providers offering BNPL services for a variety of markets, including retail, rent, travel, utilities and healthcare. It’s growing popularity has also attracted the attention of regulators aspiring to protect the financial well-being of consumers and ensure the continued health of the industry.
Kim Minor is Senior Vice President, Global Marketing at Provenir, a financial technology company that works with disruptive financial services organisations in more than 40 countries and processes more than 2 billion transactions annually. Here Minor discusses the 8 requirements needed for a BNPL provider to be successful:
To thrive in this increasingly competitive and growing market, BNPL providers must put in place the right technology framework for today while looking ahead to the future. The technology decisions BNPL providers make now will have a direct and tangible impact on the future adaptability, growth and longevity of their BNPL offerings.
Here are eight key technology requirements BNPL providers should consider:
#1: Data Access for Real-Time Decisioning
While soft credit pulls are still a viable option for those with traditional credit scores, in a high-risk, rapidly evolving market such as BNPL, providers need to be confident that their risk decisioning is both accurate and based on real-time information. Basic, soft pull credit checks, which often don’t report the most recent activity, can make decisions riskier and less accurate.
Instead, BNPL providers need to look to data outside of the traditional credit score, and turn to alternative data such as behavioural scores, telco information, transactional data and open banking to give real-time insights into affordability and risk. Leveraging data from a wide variety of sources while also having the ability to quickly integrate and test new data can improve decisioning accuracy.
This requires technology that empowers BNPL providers to create new data integrations with zero hard-coding. The market is shifting toward an approach of having prebuilt connections to data vendor APIs that reduce integration times from months to minutes. The result is real flexibility via access and use of data exactly where and when it’s needed, whether in decisioning processes, onboarding processes, or for performance analysis.
#2 Real-Time Onboarding
When instant gratification is expected and often needed, technology that simplifies the onboarding experience for both merchants and customers is essential. If a business cannot onboard a customer quickly and easily, there’s a good chance that customer will move on to a competitor. Automation capabilities can minimise customer effort by leaning on technology to do the heavy lifting. Ideally, this approach leverages automation to augment customer data with the additional information needed to perform robust compliance checks, identity verification and risk decisioning all in real-time.
#3 Agility in Compliance Processes
Looming legislation has the industry in a state of flux, but investing in the right technology can keep BNPL providers on the right side of compliance regulations now and in the future, in whatever countries and sectors they operate in.
Investing in technology that supports agile processes, from adding in additional Know Your Customer (KYC) processes to ensuring all affordability requirements are met, can keep products fully compliant. Solutions that leverage no-code, drag and drop user interfaces can empower risk teams to update processes, add in new data sources and make changes as needed. This eliminates reliance on outside technology vendors and frees up the development team to focus on creating the intellectual property to foster differentiation and competitive advantage.
#4 Fully Integrated Fraud Processes
Fraudsters have set their sights on BNPL services and have been quick to exploit consumer-friendly onboarding and purchase experiences. To keep one step ahead of those looking to exploit weaknesses in the system, BNPL providers need fully integrated fraud processes, such as robust Anti-Money Laundering and KYC tools, digital footprint tracking, transaction monitoring, simple integration or advanced fraud tools. Catching fraud early in the process prevents bad debt being passed down the credit lifecycle.
#5 Continuous, Real-time, Learn and Improve Cycle
Many companies struggle with visibility and response to performance and decisioning data in real-time. To grow your BNPL business, it’s essential to have the ability to monitor performance data as it’s happening and use that real-time information to identify innovation opportunities. In turn, that technology should make it easy to take those insights and make rapid changes to processes, forging a continuous improvement loop that drives innovation.
There are a few key capabilities critical to support rapid learning and iteration. Real-time visual performance dashboards offer a data analytics visualisation “cockpit” to identify insights that empower innovation. Constant innovation means constant iteration of analytics models. It’s important for BNPL providers to use performance and decisioning data to train and retrain models in real time, rather than waiting months to insert updated models back into production environments.
#6 Support for Rapid Time-to-Market and Diversification into New Industries
The industry is currently made up of broad players that support a wide variety of merchants, and niche alternatives that focus on specific areas such as travel or healthcare. New niches bring both new opportunities and new risks. Because your BNPL business may need to power consumer BNPL as well as business-to-business BNPL, it’s important to have technology that can power your plans today as well as future plans and diversification into new industries. Technology elements that enable BNPL providers to pivot and enter new markets at record speed include simplified data integration, no-code elements, rapid model deployment and even prebuilt reusable decisioning templates.
#7 Support for the Full Customer Lifecycle
The goal of a BNPL product isn’t just a “one and done” exchange, it’s an ongoing customer relationship. Organisations must grow and nurture these relationships throughout the customer lifecycle. Look for solutions that can support everything from onboarding to fraud management and ongoing credit line management to collections.
Using a risk decisioning ecosystem to manage the entire lifecycle results in smarter decisioning and superior consumer experiences. When all of company’s customer and decisioning data is consumable by that ecosystem, it eliminates data silos that prevent the business from fully identifying risk and empowers rapid iteration and innovation. Instead of using multiple systems to manage different parts of the customer lifecycle, the business is able to use one robust decisioning solution to tackle many processes, which is both more efficient and more cost-effective.
#8 Model Flexibility
Research from Rexer Analytics finds that only a small fraction of data scientists are successful in having all their models deployed. It often takes weeks or months for models to go live, with many never making it through the deployment process.
Whether based on model drift parameters or a predetermined schedule, retraining models can be a time-consuming process. Solutions that feature machine learning — or MLOps capabilities — that allow a provider to retrain models in real-time can significantly improve decisioning performance.
If your business is faced with data science talent shortages, consider solutions that offer prebuilt or custom-built models to alleviate the impact of these shortages. This can be a smart way to accelerate time-to-market or make a strategic shift in the risk strategy.
Buy Now Pay Later, Built for the Now and Agile to Shift Later
The time to architect your BNPL offering for speed, agility and sustainability is now. Technology offers tremendous advantages that can ensure your BNPL is built for the long-haul and agile to adapt in the evolving BNPL market.