How Can Banks Digitize to Attract Buy-Now-Pay-Later Subscribers?

Buy-Now-Pay-Later is emerging as the fastest-growing e-commerce online payment method in India, predicted to capture 9% of the market by 2024. Banks can turn a blind eye to its adoption, but that may give rise to competitors eating into their profit margins in the credit space.

The new-to-credit population is buy-now-pay-later’s biggest market, with other age groups increasingly buying in on the idea. It is substituting for credit at an unprecedented rate, as it offers lower-than-ever interest rates, mostly closer to nil.

Understanding drivers for consumers to opt for buy-now-pay-later is bound to help decipher a digitization puzzle that defines the evolving customer. In the process, banks have been able to gage how to hold their ground in evolving banking environments.

Banks are on the Greener Side of Regulatory Compliance

Buy-now-pay-later (BNPL) service providers are typically partnering with NBFCs who extend credit to consumers and settle transactions with merchants or sellers in separate cycles. Most BNPL services are offered by Fintech companies that are yet to face the scrutiny of regulators regarding the amount of debt they issue and to whom.

As seen in recent times, unregulated institutions issuing debt are exposing themselves to more risk than their regulated counterparts. Some of which are viewed as entities providing tech-enabled services and many of which are absent from the ‘payment system operators’ list released by the RBI, dated 5 November 2019.

Moreover, the reputation among consumers for some buy-now-pay-later programs are negatively affecting the image of this service. Here, traditional banks have seized a golden opportunity to step in and potentially offer better BNPL programs that are backed by the values that they have built over all these years.

What Should Banks Consider about Buy-now-pay-later models?

Since digitization has become everyday talk, clients expect banks to be omni-present. This leaves newer entrants to enjoy the niches that they target, while traditional banks are tasked with having to create digital interfaces and work on strategies to retain legacy clients.

On a positive note, even in changing times Banks are still counted on for wealth consultancy, protection of assets and much more. As banks digitize, they’re also able to leave research tasks to AI and focus on offering customers a hassle-free journey into digi-territory.

When it comes to buy-now-pay-later, the payment option may look like one that hampers profits rolling in from credit cards. But, as financial markets are understanding the benefits of offering choices to customers, new areas of study show that both payment methods co-exist and complement each other.

This being said, buy-now-pay-later may be a buzz, but it’s a buzz that gets people talking about the option to get credit without the taboo surrounding debt. It can be made available to anyone with a good credit score, leaving credit cards to function as a symbol of exclusivity.

For both current and future customers, it is important to have the right offering in the right place when the need arises. Quick digitization is the only option for Banks to make the most of the ever-growing segment.

Analytics Gage Potential for Customer Retention and Newer Markets

In India, ICICI Bank recently entered a partnership with payment service provider Pine Labs to offer in-store pay-later in the retail space. Clients could make high-value purchases with payments split for monthly paybacks in instalments.

Globally, Challenger bank launched a credit card that mirrors BNPL services. It combined monthly charges into installment plans to let customers choose a repayment period between 24 and 60 months to pay it off. Notably, underwriting technology uses machine learning to analyze customer’s credit worthiness. Other factors that banks can monitor in this scenario are also utility bill payment history and cash-flow analysis.

Understanding markets still require monumental resources, but technologies can transform the process of strategic planning. Further on, banks can leverage their customer-oriented analytics systems to understand how and why consumers opt for the service.

New Age Analytics for Insights to Enhance Marketing Strategies

In a changing banking atmosphere, lending processes are expected to prevent clients from taking on bad debt. Once this strategy is in place, safer transactions for lenders, customers, and merchants will come to be recognized as banks’ priorities.

New-age ADF and MIS Systems provide integrated data, offering an enterprise-wide view of assets, client behaviour, and risks. Banks can also accelerate the transformation from data to information to equip such major marketing decisions with valuable insights.

Risk Based Analytics to Help Banks Evaluate Customers and Segments

As new Fintech services gain widespread adaptability, cutting edge solutions emerge to replace old ways of doing things. BNPL may be the new-and-improved service, but Banks need to account for the possibility to offer choices to their customers at major brand contact points. Especially for those that have the potential to replace credit billings.

In this scenario, banks can pit technology against technology and put in place risk based systems that handle detailed quantification to understand customer segments, and eliminate the worry around any defaults even from new credit offerings.