<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner1251-9.webp" alt="M2P Fintech" title="" id="dmf2k0y2z" width="100%" height="356">“Hey, buy your favorite designer shoes now. Pay later at your convenience.”Can anything be sweeter than these words?It’s sure to beat the sweet pleasure of biting into soft, creamy, warm waffles. Except, of course, you pay for them later too!Now don’t be lost. We’re not blabbing about a random retail marketing gimmick.We’re referring to the strategic, monumental Buy Now, Pay Later (BNPL) phenomenon that’s taking the world by storm.If you don’t know what BNPL is, here’s a starterBNPL is the hottest revolution in the world of credit payments. It gives consumers access to instant credit lines to pay for products they want at their leisure. BNPL fuels, not just food delivery and e-commerce today. It pervades the world of travel, fashion, education, insurance, and anything and everything that allows digital payments.In India alone, the BNPL market is estimated to grow at a CAGR of 24.2% from 2021 to 2028.<img src="https://miro.medium.com/max/700/1*Y7VyoSPYDYUWjKkF5dA7_g.jpeg" alt="Buy Now Pay Later Market Size in India" title="" width="100%" height="284">Did you know?Over 49% of consumers spend more when using BNPL service than they would on a credit card (Source: Cardify.ai, a consumer spending data firm).Yes, the Buy Now, Pay Later service stimulates people to checkout with fuller carts loaded with luxury products compared to other payment forms<h2 class="heading-node" id="4307">But why is BNPL so popular?</h2>Several tangible and intangible components contribute towards the immense allure of the BNPL phenomena. First, the proliferation of BNPL is more in online commerce than in-store ones due to changing customer behavior coupled with the impact of the pandemic.&nbsp;Second, it has also made businesses leverage this payment mode as a potent tool to entice customers to load their carts with impulsive purchases.<h3 class="heading-node" id="ecb4">1. Pandemic-driven online commerce</h3>The Covid-19 pandemic provided a significant boost to BNPL, as the restricted mobility accelerated online purchases. However, consumers had limited purchasing power, and the existing credit infrastructure did not support the demand and supply dynamics.This was precisely when BNPL emerged as a potent enabler helping lockdown consumers use instant credit to purchase food supplies, medical supplies, apparel, and services such as online courses, insurance, utility payments, housekeeping services, etc. The financial support BNPL provided consumers during the pandemic was unwavering and relentless. Thus people began purchasing only from businesses that provided BNPL payment options<h3 class="heading-node" id="8f8c">2. Instant gratification across demographics</h3>Over 50% of Gen Z and millennial consumers who are most tech-savvy amongst the consumer base indulge in the convenience, affordability, and speed that BNPL transactions offer over other forms of payments.Today’s youth have lower purchasing power, a volatile credit rating, and a whim to purchase anything and everything in an instant. BNPL gratifies its caprice by providing instant credit, convenient repayment plans, and soft credit checks that do not impact individual credit scores.But it does not mean that older consumers are not drawn by the Buy now pay later allure. On the contrary, the no interest rate feature and convenient duration to pay off the loan attract consumers across all demographics.<h3 class="heading-node" id="78bd">3. Convenient, affordable repayment plans</h3>Most BNPL providers enable consumers to repay the credit within 15 days without any interest. Or you can switch to easy EMIs with 2,4,6, or 12 months window or facilitate auto-debit from your bank account. You can also use the scan and pay option to pay in stores and use the BNPL UPI ID to go cashless anywhere, anytime<h3 class="heading-node" id="06f3">4. Easy KYC, no exorbitant charges</h3>With minimal eKYC, you can enjoy maximum credit based on your income. There are no complex interest calculations, service charges, compound interests, or hidden charges, unlike credit cards. All the payment terms are stated upfront before the payment.Also, there is no need for OTP verification, entering card details, recharging your wallet every time you need to make a payment.<h2 class="heading-node" id="l84nocbpw">Psychological factors that accelerate BNPL adoption</h2>Intrinsic psychological factors play a critical role in accelerating the growth of BNPL. Understanding the psychology behind BNPL helps businesses design product/service offerings according to customer behavior and preference, increasing customer experience, satisfaction, and conversion.<h3 class="heading-node" id="8d5c">The pain of paying</h3>Ever experienced the pleasure of a tranquil spa massage or a scrumptious plate of grilled lobster vanish right when you pay the bill with cash? Here’s why.<blockquote class="block-node" id="emxg5kizl">When people make purchases, they immediately experience the pain of paying.</blockquote><h3 class="heading-node" id="cb2e">Love-hate chemistry between spending and consumption</h3>No one can deny the peculiar love-hate chemistry between spending money and the pleasure of enjoying what you pay for.When payments get deferred, it triggers relief in the brain, allowing you to enjoy life at the moment. Using the Buy now pay later option instead of cash to pay for your dream product or service lets you enjoy the moment without worrying about the money left in your pocket.<h3 class="heading-node" id="88ae">Payment modes and their emotional impact</h3>Payment modes such as cash, credit cards, BNPL, and debit cards leave their own psychological ‘pain of payment’ impact on the consumer.Dr.Carey Morewedge, Asst.Professor in Carnegie Mellon explains the pain of paying with a simple formula.Cost of your item/pool of resources (cash/BNPL/others) = pain of payingThe larger your resource, the greater will be the inclination to make costlier purchases. For example, when you are shopping using BNPL, you feel like spending a small fraction of money from a large reserve with no immediate deadline. So the pain of paying becomes dramatically less in BNPL.Whereas drawing a few currency notes out of your pocket seems like you are consuming a large portion of the available fund. Thus the pain of paying in immediate cash payment is more significant.<h2 class="heading-node" id="3bb3">How can businesses make the most of BNPL?</h2>Adopting BNPL gives your business instant access to an enormous customer base who would otherwise refrain from spending due to lack of credit availability, exorbitant credit card interest rates, and credit rating depreciation. As BNPL removes all purchase barriers, you can immediately see a rapid increase in sales and revenue.Merchants and businesses can reap huge profits as BNPL drive higher average order values (AOV) and conversion rates and lower cart abandonment and customer acquisition costs. In addition, now that BNPL reduces the pain of instant payments, it triggers repeated purchases, which is a huge deal for businesses that strive for increased sales, customer satisfaction, and loyalty.However, trying to build your BNPL infrastructure in-house will exert a lot of strain on your bandwidth and productivity. Partnering with reputed API providers will help you deploy efficient plug-and-play BNPL systems at an incredible speed. API service providers empower businesses to go to market within days with seamless integrations and in-built analytics solutions.<h2 class="heading-node" id="b997">Conclusion</h2>Like everything else in life, BNPL is a double-edged sword too. Though it fosters a win-win situation for both consumers and businesses, this short-term credit instrument presents a few risk factors. For example, consumers can run the risk of debts if they indulge in too much impulsive shopping. And e-commerce aggregator businesses may suffer from merchant fraud or credit risks if KYC and regulatory compliances are not adhered to.Want to know more about BNPL? Write to us at business@m2pfintech.com.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Factors and Psychology Behind the Great BNPL Allure

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner-1251-1.webp" alt="Account Aggregator" title="" id="9hxp4jacw" width="100%" height="479">Data is a gold mine that drives insights and efficiencies across industries. Gartner predicts that by 2023, companies that actively leverage shared data will outperform their peers in crucial metrics. With 180+ zettabytes of data estimated to be created by 2025, businesses across industries need to devise strategies to gain access to relevant consumer information. Such access will drive insight-driven decisions to boost revenue, <a class="link" href="https://m2pfintech.com/blog/why-is-risk-based-authentication-rba-critical-for-banks/">mitigate risks</a>, and reduce costs.<h2 class="heading-node" id="134f" style="text-align: justify">Consent-based digital access to data</h2>Account aggregators or financial data aggregators play a significant role in enabling data access to financial institutions, businesses, and individuals. Prioritizing fiduciary consumer relationships, account aggregators share digitally signed and encrypted data upon explicit consumer consent.<h2 class="heading-node" id="160d" style="text-align: justify">Financial data aggregation in India</h2>India launched its Account Aggregator (AA) network in September 2021, as the first step towards open banking. Built on the Data Empowerment and Protection Architecture (DEPA), the account aggregator framework is the world’s leading consensual data-sharing infrastructure.This digital data access structure serves as a substantial digital enablement initiative after the launch of public infrastructure for digital identification (Aadhaar) and <a class="link" href="https://m2pfintech.com/blog/the-rise-of-digital-payments/" target="">digital payments</a> (UPI). Millions of customers can now digitally access and share their financial data in a compliant manner.<h2 class="heading-node" id="019c" style="text-align: justify">Potential to transform efficiencies</h2>The AA framework holds the potential to transform the efficiencies and profitability of financial institutions and businesses in India. Banks, fintechs, and NBFCs can use consumer data to widen target-base, personalize services, lower risks, enhance customer experience, and future-proof their product portfolio. Collecting, cleansing, and synthesizing pertinent data helps enhance insight-driven decisions and executions.Democratization of data access via account aggregator networks has brought in a win-win scenario for businesses, consumers, and <a class="link" href="https://m2pfintech.com/blog/digital-lending-open-credit-enablement-network/">new-age digital lenders</a> with advanced underwriting algorithms and a larger risk appetite. They have broken the data monopoly of digital and financial services firms by transferring data sharing power to individuals.<h2 class="heading-node" id="a06c" style="text-align: justify">So, who are account aggregators in India?</h2>Account aggregators are NBFC-AA licensed entities that are regulated by the RBI. Contrary to the name, they cannot ‘aggregate’ data. They only enable consensual data sharing and access between consumers and financial institutions in the network. Account aggregators cannot read or resell data. They can carry data from one financial institution to another based on individual consent and direction. Consumers also have the choice to revoke data already shared.<h2 class="heading-node" id="b934" style="text-align: justify">How account aggregation happens?</h2>Data gathering, collation, and dissemination are enabled through open <a class="link" href="https://m2pfintech.com/blog/api-the-power-that-drives-new-age-banking-ecosystems/">Application Programming Interface (API</a>) connections.<h2 class="heading-node" id="e756" style="text-align: justify">Do account aggregators benefit individuals?</h2>The answer is yes.Account aggregators help consumers get rid of laborious paperwork, effort, and security issues involved in notarizing, stamping, signing and scanning physical copies of bank statements. Users need not have to expose themselves to vulnerabilities of sharing login credentials and financial history to a third party.With mobile-based digital data access and sharing process, account aggregators eliminate the conventional hassles of data access and sharing. People across demographics will get access to experiential, preference-based financial services and products. While the affluent will experience value through customized investment and insurance options, the popular masses will enjoy greater inclusiveness through friction-free access to formal credit.<h2 class="heading-node" id="0dd3" style="text-align: justify">Participants in the AA network</h2>While individuals and small businesses form the epicentre, the AA network comprises the three participants listed below.1. Financial Information Providers (FIP)&nbsp;— Data sources like banks, tax platforms &amp; insurance providers.2. Financial Information Users (FIU)&nbsp;— Data recipients such as banks, NBFCs, and <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">fintech</a> firms.3. Account Aggregators (AA)&nbsp;— RBI-regulated entities that facilitate real-time data sharing.<img src="https://miro.medium.com/max/1400/1*UnkSCGfGWZf-YpOqny9J7w.jpeg" alt="M2P Fintech" title="" width="100%" height="384">Source: PIB Delhi<h2 class="heading-node" id="72d9" style="text-align: justify">Banks in the AA network</h2>The top eight banks (listed below) that cater to over 300 million consumers have joined the AA network.1. Axis Bank2. ICICI Bank3. IndusInd Bank4. HDFC Bank5. Kotak Mahindra Bank6. IDFC First Bank7. Federal Bank8. State Bank of India<h2 class="heading-node" id="d405" style="text-align: justify">What kind of data does AAs share? How are they different from Aadhar eKYC, credit bureau, and CKYC?</h2>Central Know Your Customer (<a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">CKYC</a>) registry and paperless Aadhar Electronic Know Your Customer (<a class="link" href="https://m2pfintech.com/blog/know-your-customer-kyc-the-need-for-authentication/">EKYC</a>) capture identity verification and only shares data such as name, address, and gender. And credit bureaus reveal only the credit score, loan, and repayment history of consumers.On the other hand, account aggregators facilitate transaction data sharing from savings, <a class="link" href="https://m2pfintech.com/blog/how-can-banks-and-nbfcs-leverage-the-potential-of-digital-fds/">deposits</a>, or current accounts. They share data pertaining to consumer bank transactions, tax, pension, securities, insurance, and much more.<h2 class="heading-node" id="5e7e" style="text-align: justify">Is data sharing via AA network secure?</h2>Data shared on the account aggregator network is completely secure. It is encrypted by the sender and can be decrypted only by the intended recipient. End-to-end encryptions and digital signatures remove vulnerabilities and secure the process.<h2 class="heading-node" id="42b2" style="text-align: justify">What if consumers choose not to share data?</h2>By all means, a consumer can choose not to share any data. Joining the AA network or registering for data sharing is completely voluntary. They can link the account of their choice, enable or revoke data access at any point in time.<h2 class="heading-node" id="b9c4" style="text-align: justify">Use cases for account aggregator network</h2>Here are use cases in which account aggregators can drive efficiencies and add value to consumers and financial institutions.Personal finance management&nbsp;— Consumers can analyze personal spends across accounts, which will help generate recommendations to streamline expenditure. This process will enable better personal finance goals and budgetary adherence for consumers.Cashflow-based lending&nbsp;— Consuming data from FIPs, FIUs can get better visibility into the cash flow of applicants. Cashflow-based lending will accelerate mainstream lending, especially in SME and MSME credit space.Alternate data for credit assessment&nbsp;— Evaluating a consumer’s creditworthiness is a true challenge if there is inadequate data on his income or payment history. If credit applicants who do not have formal credit access could share their telecom bill payment to the lender, this will generate an alternate data set to assess creditworthiness.Loan monitoring for predictive default analysis&nbsp;— Every lender will want visibility into the borrower’s financial behavior to ensure discipline in repayments. The income and outflow from a person’s bank account could reveal his financial behavior. And this could help lenders predict default patterns.Selling customized financial products&nbsp;— Accessing data concerning consumer behavior with financial products will help financial institutions involved in wealth management and insurance customize their products.Wealth management&nbsp;— Imagine a customer has invested in insurance from A, mutual fund from B, Gold deposits from C, and savings account from D. An account aggregator can unify all this data and help wealth managers handle customers' portfolios more efficiently.Accounts reconciliation for small businesses&nbsp;— With account aggregators, SMEs and MSMEs would not require to manually feed in Tally/ QuickBooks for their daily invoices. They can simply consent to platforms to consume data from FIPs and derisk manual errors.Unified nomination register&nbsp;— Nominations in financial products today are decentralized, hence have to be managed individually. A joint collaboration between the account aggregator and the unified nomination register can solve this.Now, these are not all. We have just scratched the surface of the use cases that account aggregators could have. When more pipelines get enabled on AA network, the use cases will grow exponentially. Then they will have to address concerns surrounding platform stability, data privacy, and grievance redressal mechanisms.M2P believes in democratizing credit by empowering lenders with alternate data/ surrogate channels. Should you be looking for a partner who could help you look beyond conventional credit applicants' data, write to us at&nbsp;<a class="link" href="mailto:business@m2pfintech.com">business@m2pfintech.com</a><a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Account Aggregator 101- Democratizing data access and sharing

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/BNPLs-Risk-Mitigation-Strategies-Wordpress-02.webp" alt="Strategies to reduce credit risks in BNPL" title="" width="100%" height="317">Buy Now, Pay Later (BNPL) is a fascinating financing tool that presents incredible value potential to lenders, merchants, and consumers. Growing into a $100 billion industry globally with over 85% rise in user base (from 2020 to 2021), BNPL has evolved into an inevitable trend in the retail credit space.<h2 class="heading-node" id="zxstxjdpm" style="text-align: left">Win-Win-Win scenario</h2>There are no losers in the BNPL ecosystem. Whether it is consumers or merchants or lenders, all have clear winning potential. Consumers adore the <a class="link" href="https://m2pfintech.com/blog/factors-and-psychology-behind-the-great-bnpl-allure/">power BNPL gives them</a> to shop instantly and cost-efficiently, even if they have no cash at hand. And merchants prefer BNPL payments as its <a class="link" href="https://m2pfintech.com/blog/six-profitable-bnpl-business-models-to-unlock-infinite-value/">business models</a> provide them a great opportunity to drive sales. Sizeable BNPL players have attributed their 20% revenue increase to this consumer credit phenomenon. &nbsp;They’ve even reported that BNPL helped offset the generally higher transaction fees (appr. 4% to 7% per transaction) charged by service providers. Lending institutions love chiming into the BNPL tune, as it broadens and optimizes their credit issuance pipelines and drives scalable shorter-tenure small-ticket financing.<h2 class="heading-node" id="2spiqi6wu" style="text-align: left">Secret sauce to success</h2>Even though BNPL is one happy party, it still comes with some risk factors. Not just from external scamsters, but also from inherent vulnerabilities. Credit risks, chargeback scams, and Account Take Overs (ATOs) are typical issues that plague this consumer financing phenomenon. Managing and mitigating such risks is the secret sauce to successful BNPL operations. Implementing the right mitigation strategies can get rid of underlying risks without hampering customer experience.<h2 class="heading-node" id="kan5wsfe1" style="text-align: left">Mind your risk exposure</h2>A typical BNPL transaction value encompasses credit sanctioned to the customer and the amount reimbursed to the merchant. Usually, a consumer’s intent to pay, repayment capability, soft credit checks, and merchant recommendation are factored in before granting credit access. But this process doesn’t make the system immune to credit risks.Credit risk occurs when a consumer defaults on the repayment after the transaction. The tiniest exposure to default risk can put any lending institution in a vulnerable position. It could even snowball into insolvency and liquidity issues for the BNPL service provider.<h2 class="heading-node" id="gxknqrve8" style="text-align: left">Strategies to mitigate credit risk</h2>Evaluating creditworthiness plays a critical role in controlling credit risk. To make credit assessment as effective and secure as possible, best-in-class risk management parameters and credit profiling are required.As smooth and secure customer experiences are non-negotiable for successful BNPL transactions, customer-centric strategies and efforts need to be directed towards effective credit evaluation. &nbsp;State-of-the-art technologies such as Artificial Intelligence (AI), Machine Learning (ML), and Data Analytics are crucial tools to manage inherent and external risk factors. These technologies help in reducing fraud and default risks by analyzing data patterns across metrics, business performance, cash flows, and past payment track records derived from varied data sources.To mitigate credit risks effectively, the following strategies can be adopted.<h3 class="heading-node" id="zl6327vvl" style="text-align: left">1.Do a credit bureau check</h3>In Nov 2021, RBI amended the Credit Information Companies Regulation 2006, allowing fintechs to access individual consumer credit information from credit information bureaus like TransUnion Cibil, Equifax, Experian, and CRIF. With this amendment fintechs and ecommerce players can partner with lenders directly to issue BNPL on the platform, without acquiring an NBFC license. This enables first-level checks (parameters listed below) for each consumer to determine the risk associated with lending.<ul class="list-node" id="i7w0yj5i6"><li>Credit rating</li><li>Frequency of recent credit inquiries</li><li>Tracking pattern of Days Past Due (DPD) and settlements</li><li>Active credit lines</li><li>Past and active credit frauds</li></ul><h3 class="heading-node" id="rai5qc7qd" style="text-align: left">2.Interlink data points</h3>Interlinking data points associated with risk indicators such as invalid contact numbers, email addresses, or multiple card ownership will help detect irregularities. As per the privacy laws, the sensitive details of consumers need to be stored securely. So, without violating data breach and privacy laws, BNPL players can apply data analytics to gather valuable information on risk indicators, purchasing trends, and behavior.<h3 class="heading-node" id="mk9fouomh" style="text-align: left">3.Look for hidden linkages</h3>Processing BNPL transactions is not a simple task. It involves multiple steps that include linking IP, devices, email, phone numbers, and other details, in order to track and validate a customer. There is a high possibility of hidden linkages in cases that involve multiple names with common phone numbers or email addresses. Machine Learning plays a crucial role in establishing this linkage and sorting out disorders such as delivery address discrepancies and multiple account sign-ins from a single device.<h3 class="heading-node" id="biehsswov" style="text-align: left">4.Check for sudden changes in transaction velocity</h3>Credit risks and fraudulent transactions typically go hand-in-hand. Online frauds can be easily detected when there is a series of unusual high-value transactions taking place at consumer or merchant end. Cybercriminals indulge in this activity by using stolen card credentials to quickly spend the money or even create multiple accounts with fake user details.<h3 class="heading-node" id="sp618e1wg" style="text-align: left">5.Keep a lookout for shady delivery address patterns</h3>When it comes to ecommerce and BNPL, one must never underestimate the power of delivery address tracking in risk mitigation. Machine Learning tools check on delivery address patterns and take risk identification to the next level. With minimal human intervention, ML effectively detects mismatches and erratic patterns in shipping and billing addresses. This data plays a key role in detecting BNPL risks.<h3 class="heading-node" id="2ja7g15xs" style="text-align: left">6.Trust alternate data</h3>Asked to choose between the efficacy of traditional data and alternate data, most leading credit check houses will vouch for the latter. When a customer is credit-invisible, alternate data such as utility bills, rental bills, social media usage, travel history, employment record, and even property ownership come in handy to save the day.&nbsp; Alternate data supplies critical information for AI-based credit decisioning engines to determine a customer’s credit risk. Parameters such as income, nature of expenses, FOIR (Fixed Obligations to Income Ratio), location checks, negative list scrub (for PIN Code, credit check), and merchant data must be prioritized over other data points.<h2 class="heading-node" id="qwunst7q3" style="text-align: left">How we help lenders overcome BNPL risks</h2><a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">Fintech</a> companies and lenders today are vying to scale up their BNPL offering by investing in in-house technology capabilities and building risk modeling expertise directed toward the automation of credit decisions. A major hiccup here is the exorbitant cost and effort involved in technology upgrades.This is where a 3rd party partnership is required to curb costs and mitigate risks without compromising on customer experience. The collaboration will manage BNPL operations and risk management in totality while you can focus on the core business.Our BNPL Platform is a perfect example of the synergy scenario.&nbsp; We deliver the best risk management strategies for diverse consumer journeys via our loan management &amp; loan origination System. Our credit decision engine hunts and solves credit risks associated with each consumer. Using multiple cutting-edge APIs, we cover New to Bank, New to Credit, and of course existing credit data consumers at the quickest time possible.Our proprietary <a class="link" href="https://m2pfintech.com/blog/the-world-of-apis-how-they-power-fintech/">API</a> stack enables a secure and seamless shopping experience by pairing customer onboarding with a lender credit decision engine. We deliver risk management strategies that cater to Merchants, Lenders, and Fintechs across distribution channels such as card-based pay later, digital payment lines (multiple merchants), and closed-loop lending platforms.Want to know more about how your BNPL program can benefit from our credit decisioning engine?Write to us at business@m2pfintech.com. We’ll be glad to help.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Mitigate Credit Risks in BNPL

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/05/Artboard-1-copy-8-2-3.webp" alt="M2P Fintech" title="" width="100%" height="529">BNPL (Buy Now Pay Later) has become the talk of the payments industry for a good reason. It gives shoppers the ultimate convenience of instant credit access, zero interest rates, and hassle-free repayment options. Irrespective of the demography, BNPL provides a level shopping field for consumers across credit scores and purchase ability. It triggers consumer buying behavior by reducing the cost of purchase at the point of sale. Merchants and lenders gain significant competitive advantages when they deploy BNPL solutions. This inclusive consumer financing instrument helps merchants increase conversions, customer acquisitions, Average Order Value (AOV), and customer retention. Lenders benefit from optimal utilization of credit lines and the ability to build a scalable credit funnel while increasing revenue.<blockquote class="block-node" id="c39qhv3se">The Indian BNPL market size is expected to reach $ 56 billion by FY26 and accounts for 5 percent of digital P2M (Peer to Merchant) payments by FY26E, according to HDFC Securities.</blockquote><h2 class="heading-node" id="64ab" style="text-align: justify">Thriving Business Models</h2>The rise of consumer demand in the BNPL market has led lenders to rethink business models on a case-to-case basis. However, some of them are quite consistent in delivering profitability across lender profiles. Let’s check out the thriving business models that lenders use to drive the BNPL narrative forward.<h2 class="heading-node" id="a84f" style="text-align: justify">Card-based BNPL model</h2>Also known as post-purchase BNPL, the card-based BNPL allows lenders to offer no-cost EMIs to existing debit or credit cardholders after they purchase on merchant platforms. Banks, NBFCs, and fintechs can issue virtual cards for small-ticket purchases to consumers, which is acceptable with almost every merchant accepting card payments. Falling under the open network category, this model doesn’t require any prior agreement with merchants and lenders. Core considerations<ul class="list-node" id="ngcpo711t"><li>Only suited for banks that own a significant number of cards issued to their consumers.</li><li>This post-purchase BNPL solution doesn’t serve the purpose of increasing purchases and revenue for merchants.</li><li>Could cannibalize the bank’s credit card revenue when consumers with debit cards start deferring payments through post-purchase BNPL.</li><li>Doesn’t target new bank users, as it extends no-cost EMIs to existing cardholders.</li></ul><h2 class="heading-node" id="aad5" style="text-align: justify">Multi-lender platform model</h2>In this model, lenders can use BNPL payment options across merchants for their underwriting and risk management strategies. When consumers apply for instant credit for buying products or services across the merchant platform, the information is passed onto the cohort of lenders who access consumer risk profiles and choose to provide credit.For instance, if lender A declines the consumer, the same consumer profile is accessed by lender B and so on until that consumer is approved for credit. This model is the most consumer-friendly option as there is a high chance that one or more lenders will approve the credit. Examples of these providers include GreenSky, Divido, ChargeAfter, and Vyze, serving merchants like Abes of Maine, Wayfair, and Home Depot.Core caveats<ul class="list-node" id="55te5atgx"><li>Pits lenders against each other. Hence there is increased competition to issue credit and make profits.</li><li>Lenders won’t get control of the buyer journey and purchase behavior as the BNPL platform provider and merchant control the consumer data.</li><li>As multiple lenders are involved in the process, their brand recognition suffers.</li><li>The recollections and repayments cycle is managed by the BNPL platform provider, which makes them the primary point of contact for shoppers.</li></ul><h2 class="heading-node" id="0a01" style="text-align: justify">Embedded Checkout Model</h2>Embedding BNPL in the checkout page enables instant credit to consumers across merchant platforms. It also helps with personalization and consumer lifecycle management. In this model, lenders provide capital and underwriting facility to fund the embedded pay later option at the merchant’s checkout. The lenders enjoy an exclusive partnership with the merchant and can analyze shopper data to strengthen their decisions. They can tie up with a technology stack provider or build their own platform for issuing credit. One such example is the Amazon Pay Later backed by Capital Float and IDFC First Bank.Points to Ponder<ul class="list-node" id="o3urwdnon"><li>Lenders won’t enjoy brand recognition in this model as the merchant controls the entire customer journey.</li><li>Lenders need to align with merchants and tech stack providers to manage the risk and changes in the business strategy vis-à-vis rewards, promotion campaigns, etc.</li></ul><h2 class="heading-node" id="9cd5" style="text-align: justify">Self-enabled BNPL model</h2>Using this model, lenders can start their own BNPL platform and control the complete consumer loan cycle right from loan origination to credit line issuance, transaction management, repayment, and collection. This will provide them with the opportunity to integrate the Pay Later checkout option with preferred merchants. They can also have a dedicated interface to assist consumers with the entire BNPL lifecycle like transactions management, credit limit utilization, repayments, etc., through a dedicated application or by integrating this interface with the existing consumer application. Lenders can offer preferred customers with extended EMIs and rewards programs. Examples of this model include M2P’s BNPL stack for launching pay later programs for lenders.Key Benefits<ul class="list-node" id="fczisztz4"><li>Lenders have the option to manage the entire loan lifecycle and customize the platform for each consumer segment present across the merchant platform.</li><li>Based on the target consumer base and average ticket size, lenders can decide on the merchants they want to onboard on their platform.</li><li>Lenders get the option to own the complete consumer buying journey and increase brand recognition.</li><li>As the BNPL solution caters to people with low credit scores, making timely repayments gives lenders insights into further lending opportunities and builds consumer credit scores.</li></ul><a class="link au ns" href="https://m2pfintech.com/" target="_blank" rel="noopener ugc nofollow">M2P</a>&nbsp;enables banks, NBFCs, and fintechs to launch BNPL programs by leveraging its multi-module expertise and capability to manage onboarding, credit line issuance, lender management, collection, reporting, and reconciliation. Our full-stack Lender Management System helps lenders manage entire loan lifecycles across different merchants and platforms. Multiple use cases can be built as per the value chain requirements such as credit limit criteria, KYC, and multi-channel distribution such as physical/virtual card, UPI, wallets, NFC, and direct integrations with merchants, repayment options, and rewards/cashback, among many other data points. We help lenders go to market with one-click BNPL checkouts, card issuance, and seamless integrations at a 5x faster pace.Want to deploy the best BNPL solutions? Write to us at&nbsp;<a class="link au ns" href="mailto:business@m2pfintech.com" target="_blank" rel="noopener ugc nofollow">business@m2pfintech.com</a>&nbsp;and let’s get started.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Winning Business Models for BNPL Lenders

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/05/Artboard-1-copy-8-1-3.webp" alt="M2P Fintech" title="" width="100%" height="253">Can you say no to interest-free installments while shopping?None of us can.Well, that’s why the&nbsp;<a class="link au lg" href="https://m2pfintech.com/buy-now-pay-later/" target="_blank" rel="noopener ugc nofollow">Buy Now, Pay Later (BNPL)</a>&nbsp;market has grown by over 600% in the past year alone. It is considered one of the fastest-growing consumer lending modes and a close competitor to credit cards and POS lending.Currently comprising 2% of total retail Gross Merchandise Value (GMV), BNPL is expected to hit 7% GMV by 2026. Merchants across the retail spectrum are actively leveraging this short-term microcredit phenomenon to&nbsp;increase conversions and Average Order Value (AOV), and lower cart abandonment rate. In India, the BNPL market is expected to experience a 15X leap, from $3 billion in 2021 to about $50 billion by 2026.<h2 class="heading-node" id="4ac3" style="text-align: left">Feeding the instant gratification appetite</h2>The buy now and pay later in equal installments is not a new concept to the financial world. But it gathered much steam during the pandemic phase when consumer behavior and priorities gravitated towards safe, quick, and convenient online purchases. BNPL fed their instant gratification and purchase appetite by providing access to quick and easy credit without having to bother about credit history or eligibility score.Starting from a few thousand rupees to a lakh, the BNPL lending option made 0% APR installments a reality, if repaid between 15 to 90 days (depending on the lender stipulations). The negligible sign-up charges, zero processing &amp; annual maintenance charges made BNPL an attractive proposition for consumers, even though a penalty was charged for late payments.The hassle-free one-step onboarding process and simple, transparent &amp; interest-free pricing models lowered the pain of spending and increased the joy of shopping. Subsequent covid waves, restricted festivities, and people’s reprisal to reclaim normality added further impetus to the BNPL boom.<h2 class="heading-node" id="fd56" style="text-align: left">Bridging the consumer financing gap</h2>Access to formal credit or consumer lending services is usually a lag in developing economies. In India nearly 93% of the population struggles with credit approval for reasons such as low income and inadequate credit history, to name a few.BNPL emerges as the game-changer in this space, enabling easy short-term consumer credit with interest-free repayment facilities. It increases the purchasing power and repayment confidence of consumers, enabling greater spending potential. Currently, the number of BNPL users in India is around 10–15 million, and in the next five years, nearly 100 million users are estimated to use BNPL services. Players like Lazy Pay, Simpl, and Zest Money are among the many fintech companies that make this inclusion possible.To drive further omnichannel BNPL adoption, fintechs like Slice, Uni Cards and LazyPay are launching physical BNPL cards in partnership with leading banks.&nbsp;The BNPL cards offered by these fintech companies are typical Prepaid Payment Instruments (PPIs) with underlying revolving credit.<h2 class="heading-node" id="1b49" style="text-align: left">Lowering CoC through collaboration</h2>The Cost of Credit (CoC) is quite high in BNPL between 2–6 %, but so is the promise of greater sales and increased revenue.&nbsp;Merchants and lenders need to reduce CoC to enhance sustainable profitability.So, how can CoC be reduced?Simple. By leveraging collaborative efficiencies in the lending value chain.Traditional Banks with their large consumer database, trustworthy relationships, and brand equity can deliver low cost of capital when compared to other BNPL providers. And fintechs can hinge on technology innovation, convenience, seamlessness, and consumer-centric attributes to lower the cost of credit. Strategic partnerships between banks and fintech companies leverage the best of both worlds and are critical to lower cost and enhance consumer journey at the point of sale. In fact, a recent survey by MasterCard suggests that 72% of Asian consumers would prefer BNPL services from their banks rather than stand-alone fintechs.Hence, lenders such as banks and NBFCs need to actively partner with fintechs to integrate BNPL solutions to their existing credit lines and enjoy the below benefits:<ul class="list-node" id="qidwxtqfg"><li>Optimal utilization of credit lines​</li><li>Real-time credit issuance</li><li>Scalable, shorter tenure small-ticket financing</li><li>Transactional risk management and default reduction</li><li>Lower cost of issuance and distribution​</li><li>Build a funnel for credit card and personal loans</li></ul>Now, are lenders prepared to handle the projected 15X surge in BNPL demand and transactions?To answer this question, we need to be cognizant of the challenges the lenders face with BNPL issuance and how they can overcome it.<h2 class="heading-node" id="87c2" style="text-align: left">Challenges banks and NBFCs face in BNPL deployment</h2>Lending institutions like banks and NBFCs face significant challenges when it comes to exploring additional digital lending channels, small-ticket retail lending, and 3rd party merchant integrations. Especially while providing POS lending to New to Bank (NTB) and New to Credit (NTC) consumers.The existing legacy systems in banks are unable to deliver instant small ticket credit issuance at the merchant checkout. The merchant management interfaces and credit infrastructure are quite complex making dynamic credit limit assessments and underwriting quite challenging.Assessing the creditworthiness of NTB consumers is difficult as the data available with merchants and 3rd party websites are siloed. This makes it highly challenging for lenders to make real-time decisions. Business Leads, Solution Heads, and Infra Teams are on the lookout for an ideal one-stop BNPL solution that can offer cloud-native, mobile-first infrastructure and seamless integration with multiple merchants and consumer profiles.Here are the top pain points lenders experience while implementing BNPL. Drawing from our expertise, we provide resolutions to the issues.<h2 class="heading-node" id="0302" style="text-align: left">Top pain points and resolution</h2>Pain point 1:&nbsp;Slow go-to-market speed and issues with customizationResolution 1:&nbsp;It takes several months for a traditional lender to scale a fully operational BNPL Platform with capabilities across Pre-Onboarding, Credit Line Issuance, Transaction Lifecycle Management, Post Credit Line Issuance activities, Lender Management, and Merchant Management. Partnering with a BNPL technology provider will enable banks and NBFCs to go to market in the shortest possible time with full-fledged credit offerings and seamless merchant integrations and customizations.Pain point 2:&nbsp;Complex Merchant Management System and Credit Infrastructure makes it difficult to assess credit limit requirementsResolution 2:&nbsp;Customization based on consumer buying behavior is critical for merchants. For example, a high-ticket size product retailer of consumer electronics products will have different requirements compared to a low-ticket size retailer of fashion apparel. A comprehensive <a class="link" href="https://m2pfintech.com/blog/the-world-of-apis-how-they-power-fintech/">API</a> infrastructure stack with uniform multi-merchant integration efficiency and the ability to customize credit limits for each merchant will come in handy for this issue. Integrating MPI (Merchant plug-in) between lenders and merchants will be crucial to support current and future scaling plans.Pain point 3:&nbsp;Inability to integrate with the merchant and consumer database to aid underwriting.Resolution 3:&nbsp;Typically, lenders have a large consumer database that helps them underwrite credit. But for NTB consumers in the merchant platform, it is difficult to analyze consumer behavior unless there is end-end seamless integration to access real-time data and make instant credit decisions. API stacks that offer complete customized integration with relevant databases of lenders &amp; merchants will help resolve issues in underwriting. This integration enables lenders to analyze consumer shopping history in terms of average order size, cash to cards transaction ratio &amp; duration at the merchant platform for upgrading credit limit.Paint point 4: Scaling BNPL platform for multiple merchants and high cost of development effortsResolution 4:&nbsp;Mushrooming growth of e-commerce companies catering to diverse segments and niche consumers has contributed immensely to lender’s BNPL opportunity. Scaling the platform to include more merchants while keeping development costs under control is imperative for a healthy ecosystem. Leveraging a uniform BNPL API stack with multi-merchant integration capability will offer complete scaling freedom and control to lenders based on their POS credit issuance budget and strategy. By partnering with an end-to-end uniform API stack provider for onboarding merchants and a program-focused pricing model, lenders can easily scale up while controlling cost. This way lender partners can have total control over the number of merchants they wish to onboard on their platform.Pain point 5: Security and compliance checks for merchants and lender integrationResolution 5: BNPL Platforms need to adhere to the financial industry’s latest security and data privacy standards and <a class="link" href="https://m2pfintech.com/blog/pci-dss-the-payments-armour/">PCI-DSS</a> compliance. In the case of physical card issuance, <a class="link" href="https://m2pfintech.com/blog/cracking-tokenization-for-bnpl-player-tabby/">tokenization</a> and Anti-Money Laundering (AML) fraud checks should be done in real-time for each transaction. The complete infrastructure should be hosted on a secure data center with 24/7 availability. In case lenders do not have compliance infrastructure, they can partner with API providers who have a compliance armor ready in the form of widgets.Pain point 6:&nbsp;Niche skills and resources required to build integrations across merchantsResolution 6:&nbsp;Building a full-fledged BNPL platform from scratch requires a lot of resources, Capex, and fintech expertise. Build Vs Buy decision plays a critical role in the successful implementation of BNPL.Choosing the buy decision and partnering with an experienced API provider like M2P will help ease the process of creating, running, scaling the BNPL platform. This way banks, NBFCs, and fintech firms can focus on core business and leave the issuance and program management part to the experts. With proven experience of enabling lender credit lines with multiple merchants integrations, experts like us can deliver seamless One-click BNPL Checkouts in the quickest time possible.<h2 class="heading-node" id="5923" style="text-align: left">How do we help lenders overcome BNPL challenges?</h2>Working with leading banks across India, we help new-age lenders and traditional banks launch BNPL over its cloud-native, mobile-first BNPL platform which is specifically designed to address their challenges. The BNPL API stack used is customizable and scalable according to the growing needs of lenders, merchants, and consumers. We help lenders go to market with one-click BNPL checkouts, card issuance, and seamless integrations 5x faster.M2P’s BNPL platform serves as a one-stop solution with multi-module expertise and capability to manage onboarding, credit line issuance, lender management, collection, reporting, and reconciliation. Our full stack Lender Management System helps manage loan lifecycles across different merchants and platforms. Customization is prioritized as per the value chain requirements such as credit limit criteria, KYC, multi-channel distribution such as physical/virtual card, UPI, wallets, NFC, and direct integrations with merchants, repayment options, and rewards/cashback, among many other data points.<h2 class="heading-node" id="eda9" style="text-align: left">The right time to deploy BNPL</h2>BNPL is a promising trend in the global financial system which resonates well with the ever-increasing digitalization phenomenon. It has reached an inflection point, with big fintech players streamlining their business models and focusing on mergers &amp; acquisitions.Now is the best time for lenders to take the lead in overcoming pain points and turning their business objectives into reality.Want to know more about deploying&nbsp;<a class="link au lg" href="https://m2pfintech.com/buy-now-pay-later/" target="_blank" rel="noopener ugc nofollow">BNPL solutions</a>?Write to us at &nbsp;<a class="link au mg" href="mailto:business@m2pfintech.com" target="_blank" rel="noopener ugc nofollow">business@m2pfintech.com</a>.&nbsp;We’ll be glad to help.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

How can lenders overcome challenges in deploying BNPL solutions?

Secured Credit Cards 101 - Where Credit meets Saving

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-8-8.webp" alt="M2P Fintech" title="" width="100%" height="253">Is your credit score below 670?Don’t worry. You can still own a credit card.Yes, <a class="link" href="https://m2pfintech.com/blog/secured-credit-cards-101-where-credit-meets-saving/">a secured credit card</a>!Unlike regular credit cards, secured credit cards do not mind you having a low credit score. In fact, they help build your credit score and earn rewards as you spend.Not heard of secured cards before?That’s because even though secured cards have been in existence for more than 20 years, it comprises less than 2% of the cards market share in India.But that scenario is rapidly changing now.Fintech firms like <a class="link" href="https://m2pfintech.com/">M2P</a> have taken the initiative to enable financial inclusion by simplifying secured credit card issuance and program management. Banks like SBM, SBI, Kotak, RBL, ICICI, and other fintechs like <a class="link" href="https://wizi.app/home">Wizi</a>, <a class="link" href="https://www.sliceit.com/">Slice</a>, and a few others are issuing secured cards to customers with less-than-ideal credit scores.<h2 class="heading-node" id="ea78" style="text-align: justify">What is a Secured Card?</h2>A <a class="link" href="https://m2pfintech.com/blog/secured-credit-cards-101-where-credit-meets-saving/">secured card</a> is a credit card that allows you to spend in a risk-free and rewarding manner. They are backed by a <a class="link" href="https://m2pfintech.com/blog/how-can-banks-and-nbfcs-leverage-the-potential-of-digital-fds/">fixed deposit (FD)</a> that is used as collateral by the issuing bank. A secured card earns you rewards not just in the form of cash backs but even gold.Consider you want to purchase a secured credit card. All you need is a fixed deposit as supporting collateral. The FD can be an amount of your choice that will act as a credit limit for your card. The fixed deposit serves as a kitty for card issuers to rely on when there is any default in your payments.Wonder if a secured credit card is a good fit for you?Here are 3 compelling reasons you need to know.<h2 class="heading-node" id="779e" style="text-align: justify">3 reasons why secured cards are a good fit for you</h2>Regular credit cards have been overshadowing the secured cards market for a long time now.But not anymore!People reach out to companies that issue secured cards to enjoy the following spend-worthy benefits.<h3 class="heading-node" id="2ada" style="text-align: justify">1. Earn while you spend</h3>As India’s retail inflation rate rose to 4.48 % this year (as of October 2021), saving while spending seems like an impossible task. But, secured cards are here to bridge those gaps.Secured cards help you earn interest on your fixed deposits while you spend from your card. Apart from the rewards like cash back and airline miles, secured cards can also earn you tangible rewards like digital gold for every spend.For example, ICICI’s coral card earns you double reward points on supermarket and dining transactions. Another noteworthy example is <a class="link" href="https://gild.cards/">Gild from Wizi</a>, India’s first secured card that rewards 2% gold for every spend.<h3 class="heading-node" id="7fad" style="text-align: justify">2. Build or improve credit score</h3>Getting secured cards is the easiest way to improve your creditworthiness. It helps you build a good credit history and even improve your existing negative credit score by making timely payments. Even in case of missed payments, the amount will be deducted from your security deposit. So, there is no negative impact on your credit score.Once you have stepped into the world of secured credit cards, the credit bureaus get notified of your payment history within 30–45 days. This is how your credit score will improve over time, and you can get thumbs up for other credit options or loans in the future. These cards are really great for those who cannot get hold of a lender because of their bad credit score.Take a look at credit score ranges to know how issuers decide and approve your credit line.<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/06/Artboard-1-copy-9-6.webp" alt="M2P Fintech" title="" id="37xsnx4zf" width="100%" height="253"><h3 class="heading-node" id="42be" style="text-align: justify">3. Spend at zero risk</h3>Secured cards give their users zero-risk spending options. Present-day customers enjoy using secured cards more than unsecured cards because of “the investment + saving + rewarding mechanism.”Secured cards are considered featherweight as you can also start off with a smaller security deposit and gradually increase on a monthly basis. This way, you can avoid getting into debt and save your credit deposit from getting deducted in case of missed payments.It also poses no risk for the card issuers as the fixed deposit or collateral reduces the credit risk. So, it is risk-free for issuers as well, as they can recover the outstanding amount from FD in bad situations.<h2 class="heading-node" id="c733" style="text-align: justify">Rewarding Savior</h2>Secured cards are a savior for people who face challenges with personal finance management. It allows you to make stress-free card payments, get tangible rewards, improve credit scores, and plan future expenses within the limit. Secured cards also help build your financial health as it is backed by a cash deposit for security.Having known these top reasons, you know what to do next.Yes, get your own secured card.Happy Spending! Happy Saving!<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox.Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

3 reasons why you need a secured credit card

<img src="https://m2p-website-file.s3.ap-south-1.amazonaws.com/m2p-website-file/marketing-cms/m2p-blog/2022/04/banner-5.webp" alt="M2P Fintech" title="" width="100%" height="284">BNPL, the acronym for Buy Now Pay Later, though a relatively new concept, is slowly becoming the talk of the town. The new-age shopper is now drawn to BNPL products and is ditching the traditional payment options like Credit Cards. The article below explores the “why” of this paradigm shift.Starting from the ease of checkout to personalized offers, BNPL has masked the word and feeling of a “Loan.” It is simply viewed as Buy Now and Pay Later minus the paperwork and as a different IOU avatar. Along with the single-click checkout, BNPL also gets your merchant to bear the cost of No Cost EMIs. The<a class="link" href="https://m2pfintech.com/blog/factors-and-psychology-behind-the-great-bnpl-allure/"> factors and psychology behind the allure of BNPL</a> will sure make this the next big thing in consumer finance.<h2 class="heading-node" id="92eu7wjat">Are credit cards getting left behind?</h2>Traditional <a class="link" href="https://m2pfintech.com/blog/credit-card-processing-a-definitive-guide/">credit cards</a> were once a great choice for credit lines, but they are also perceived as a debt trap. Often, the lack of transparency and complex interest calculations attract heavy penalties and bad credit scores for the customer, leading to difficulties when securing a loan in the future.This is where BNPL holds a massive advantage over traditional credit cards. They offer a clear and transparent checkout option where the consumer is presented with all the factors of applicable charges and due dates upfront.Some BNPL players have even gone a step further and adopted time-tested <a class="link" href="https://m2pfintech.com/blog/six-profitable-bnpl-business-models-to-unlock-infinite-value/">business models</a> and have appended penalties for specific time frames. So, in the end, the new-age shopper not only gets flexible repayment options, but they are also empowered to understand financial nuances in case of late or missed repayment.<h2 class="heading-node" id="hlrx7eya9">BNPL in India</h2>After creating ripples in the US, Canada, Australia, and Europe, BNPL has now started its journey in the Indian <a class="link" href="https://m2pfintech.com/blog/fintech-a-catalyst-for-financial-inclusion/">fintech</a> ecosystem. And in a country where loans are generally frowned upon, BNPL has captivated customers with ease of payment, right at the checkout page.<h2 class="heading-node" id="njbjh0x7b">What is its premise ?</h2>Even though BNPL applications have adopted different means to facilitate checkout, they center around the issuance of “credit.” It also increases the shopper’s purchase power while completing the transaction with minimum hassle.Moreover, like Credit cards — BNPL applications are powering users for:<ol class="list-node" id="i38mltydk"><li>&nbsp;Consolidating many small expenses in one bill</li><li>Splitting a major expense in multiple repayments</li></ol><h2 class="heading-node" id="8i4r6mnzz">Let’s assess the BNPL options here in India!</h2>For example, Anuj has a list of standard expenses made at different e-commerce and hyperlocal players. He pays them all via a debit/credit card, which means entering card details, OTP, and finally paying the credit bill. With a single BNPL application where there is no need of OTP or card details, Anuj gets to shop without the hassle and gets to settle the bill through his preferred settlement option.So this option of BNPL has and offers the following features:<ul class="list-node" id="sd226xl5k"><li>Suited for small ticket sized purchases</li><li>Monthly or fortnightly settlement cycle</li><li>Single-click checkout</li><li>Late payment charges and penalties applicable on delayed repayments</li></ul>So, next comes the question of big ticket purchases:Let’s assume Anuj wants a new TV that is top of the line in the market and quite expensive. While using a credit card to make a purchase is a traditional method, BNPL offers a much easier way. The TV’s cost will be split into 4 EMIs, while the TV seller/merchant bears the EMI’s interest charge. So, in the end, the merchant gains a loyal customer, and Anuj gets a better way to manage his finance with manageable repayments.In this method, BNPL works this way:<ul class="list-node" id="ojf0e1333"><li>Suited for higher ticket sized purchases</li><li>Bill split into multiple EMIs as provided by the seller</li><li>Seller funded no-cost EMIs up to a time frame</li><li>Late payments penalties accrue if a due date is missed</li></ul><img src="https://miro.medium.com/max/1400/1*0IJebDapK8llqNbqHPZRig.png" alt="Features of Buy now pay later (BNPL)" title="" width="100%" height="227"><h2 class="heading-node" id="e9a4">Who are the users of BNPL?</h2><blockquote class="block-node" id="0m4ltzb7o">Millennials, Bridge Millenials and Generation Z, are the early adopters of BNPL.Source: Pymnts- Buy Now Pay Later Report-2020</blockquote>It is worthwhile noting that the youngest millennial is turning 25 this year, and he can be assumed not to be the ‘reckless spender.’Alternatively, cash transactions are in the lead, followed closely by debit and credit cards. However, with BNPL and digital wallets, this dynamic is slowly shifting, and it is an exciting wait to see who tops the chart. Many users who have never used or have limited exposure to credit cards rely on BNPL applications for credit needs.<img src="https://miro.medium.com/max/1400/1*PP1cOWo5J44sdLX1XpGnAQ.png" alt="Top reasons for using BNPL services" title="" width="100%" height="227"><h2 class="heading-node" id="7886">Well, now the fundamental question arises about the user without a good credit history.</h2><a class="link" href="https://m2pfintech.com/blog/how-can-lenders-overcome-challenges-in-deploying-bnpl-solutions/">BNPL lenders</a> give credit lines to shoppers based on secondary data. For example:· They analyze the data points like shopper’s history with the merchant<ul class="list-node" id="nmesbiiog"><li>· Average order size, time of association</li><li>· Order behavior like the number of prepaid, canceled, or COD orders.</li><li>· Order history and other available digital footprints of the shopper.</li></ul>Based on this data, <a class="link" href="https://m2pfintech.com/blog/winning-business-models-for-bnpl-lenders/">BNPL lending business models</a> enable credit to a user, and it gets enhanced as he/she makes timely repayments of the offered credit.<h2 class="heading-node" id="tpb0fu2ew">Connection between COVID and BNPL</h2>The ongoing pandemic has certainly accelerated BNPL adoption across the globe. With employees being laid off, being furloughed, and the uncertainty about their income, consumers are inclined towards budget-friendly payment options in which BNPL certainly takes the lead. Merchants are also more receptive to BNPL applications than they have ever been as it increases their consumers’ purchase power.<h2 class="heading-node" id="a0c0">How does the future look for BNPL?</h2>BNPL, in a decade, has taken the lead even though banks have been lending for hundreds of years. Today, banks are trying to keep up and switch to a digital-centric approach, such as providing their BNPL offerings and partnering with a Fintech to co-create solutions for consumers. BNPL, for banks, is an excellent medium for portfolio diversification.In India, BNPL has been scratching the surface, and it has a long way to go. Internet penetration has created the market where BNPL could fly in the coming years with FinTech’s, Banks, and Merchants’ necessary push.We can expect regulators also to fence BNPL offerings in the coming years. One thing is for sure, BNPL is here to stay, and it’ll keep on luring consumers. We are yet to watch its full potential and need to wait to see how BNPL shapes commerce in the future.To know more about BNPL, write to business@m2pfintech.com.<a class="link" href="https://m2pfintech.com/newsletter/">Subscribe</a>&nbsp;to our newsletter and get the latest fintech news, views, and insights, directly to your inbox. Follow us on&nbsp;<a class="link" href="https://www.linkedin.com/company/m2pfintech/mycompany/">LinkedIn</a>&nbsp;and&nbsp;<a class="link" href="https://twitter.com/m2pfintech">Twitter</a>&nbsp;for insightful fintech tales curated for curious minds like you.

Tag: "Digital Lending (52)"

M2P Fintech