You've probably heard of buy now, pay later if you work in fintech ewallet or payments (BNPL). It's one of two big fintech themes in 2022.
In this article, I'll split BNPL into five categories:
What is the BNPL and how does it function?
Why is it so popular?
Currently taking place
Risks that could occur
What is the BNPL and how does it function?
Bnpl scheme is a method of payment that lets people purchase a thing now and pay later. The current BNPL can take one of two forms:
Pay in X installments: The most popular option is to pay in four installments. Every two weeks, you pay 25% of the purchase price. This is a completely free choice. There are no extra costs or interest costs.
Short-term loans are for payments over a longer period, usually 12, 24, or 36 months. You pay interest on this type of borrowing just like any other type of loan.
THE BUSINESS STRATEGY
When a consumer makes a transaction, BNPL charges a fee to the merchant, similar to credit cards. The cost is usually between 4 and 6 percent. Because most BNPLs use debit card infrastructure, they will be required to pay a portion of the charge to the financing provider, the card network (for moving money from customers to BNPL finance providers), and the issuing and acquiring processor /POS.
WHAT MAKES BNPL SO POPULAR?
To summarize, timing, targeting, marketing, and delivery are all important.
TIMING
The fall in credit card usage, in particular. Credit cards have a terrible reputation in the United States as a tool to push people into debt and force them to pay excessive interest, late, and overdraft penalties.
MARKETING
Once the target segment has been determined, the next step is to develop an offering for that market. For example, BNPL collaborates with retailers that cater to a younger demographic (see graph below). Furthermore, giving the company a distinctive name: BNPL sounds a lot better than installment payment plans or short-term loans.
Customers adore BNPL for a variety of reasons.
Customers love BNPL for the following reasons, according to two distinct surveys:
1. Do not pay interest.
2. Make payments in installments
3. Buy something that isn't in my budget,
4. it’s simple to use.
5. Ineligible for a credit card.
RISK DEBT ISSUES:
BNPL, like any other debt product, is susceptible to debt issues. According to a recent report, 1/3 of US consumers are behind on their payments (and 72 percent of those consumers said their credit score had declined). In the United Kingdom, one out of every ten BNPL customers has been pursued by a debt collection agency.
The fact that BNPL is so simple to use is one factor contributing to the problem. People have stated that because BNPL is integrated into the checkout process and the procedure is so fluid, consumers are receiving BNPL without fully comprehending the product. On the contrary, this is one of the reasons for Financial Technology success.
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