BNPL from Fintech Providers: What are the 4 Dire Implications for Retailers?

Offering buy now, pay later (BNPL) loans and split payments can be a prime differentiator for retailers and merchants: Some have reported seeing as much as a 40% increase in sales after adding the service.

But what’s the catch? What could possibly go wrong?

The thing is, there’s no shortage of BNPL companies. And as they are not cut from the same cloth, choosing the right solution with the best outcomes can be a challenge.

Here are four possible implications of BNPL offerings and what merchants can do to ensure they are ahead of the game.


1. Poor customer experience.
Merchants are increasingly aware of certain issues that should be taken into account when working with direct-to-consumer BNPL providers in terms of sacrificing their customer experience to a third-party provider.

Approximately 70% of consumers who’ve used BNPL financing have ended up having interest charged by fintech companies or paying fees for missed payments. This raises questions about whether merchants want to risk alienating customers with a negative financing experience, one which is out of their control.

BNPL isn’t governed in the same way as credit cards or other personal finance instruments; it only uses surface-level credit checks, and there are often transparency issues.

Merchants and consumers need POS financing solutions that are straightforward and transparent from the get-go in terms of repayments and data sharing.

By offering white-labeled BNPL products from regulated financial entities, merchants can retain control over their customers’ experience, build consumer trust, boost their own brand image, and put data and customer ownership back into their own hands.

2. Lower pay-over-time approvals.
Merchants offering POS financing could increase customer conversions by maximizing approval rates. But if a customer’s financing application doesn’t get approved by a BNPL service plastered to checkout, it can leave a bad taste in their mouth, often toward the merchant rather than the lender.

Lenders often categorize consumers based on their risk profiles: Those who are sub-prime customers are more likely to apply for consumer financing but are less likely to be approved by a prime lender. As not every consumer is eligible for prime lender financing from Tier One banks and lenders, a single-lender or single-loan offering just won’t cut it and often results in lower approval rates.

A multi-lender BNPL solution with waterfall could rectify this and tap into near-prime or less-than-prime consumers.

This is how it works: If a customer isn’t eligible for prime lender financing, their application will automatically ”cascade” down to the next lender in the tier, maximizing their chances of approval. It unlocks a ”waterfall” of lenders and loan programs for the customer.

When choosing a BNPL multi-lender solution, it’s important to look for one that enables retailers to sign a direct agreement with each lender in their waterfall. This ensures the most competitive rates as well as full control and transparency for the merchant.

The biggest online retailers that already offer or want to start offering point-of-sale financing and split pay will begin to see multi-lender and waterfall consumer financing as a need-to-have to improve customer acceptance rates and consumer purchasing power. Merchants need to cater to diverse customer needs, but a single-lender solution sometimes misses the trick.

3. Limited access to super-prime customers.
Gen Z and millennial consumers, who are moving away from credit cards, have a particularly favorable view of a merchant offering BNPL loans. But how can retailers also attract older generations as well as super-prime customers (who have a good credit history and wouldn’t usually apply for consumer financing)?

With different consumers, products and ticket sizes, one financing solution from a large fintech sometimes isn’t enough. As there is intense competition in the retail space, offering a full spectrum of diverse, personalized BNPL options is important to satisfy varying needs.

While POS loans are a good fit for larger-ticket items, split pay is best for smaller-ticket products. Ticket size aside, retailers that don’t offer split payments should do so (even if they already offer POS loans) to appeal to their super-prime consumer base.

Split pay is a payment option and not a loan. Super-prime customers don’t need to apply for a new line of credit or loan and can split repayments on an existing card with no interest, leading to increased cart sizes. It becomes a case of “Why not?”: With split payments, they can better manage their cash flow with no extra costs or hassle.

By expanding POS offerings to include everything from split pay to POS loans, retailers can entice customers of all risk profiles to make the purchase, increase their average order value, and return for repeat business.

According to Juniper Research, this also keeps a retailer competitive in the BNPL market, which is expected to reach $995 billion by 2026.

With a white-labeled BNPL platform, merchants could implement a variety of loan programs from top lenders and cater to the needs of their super-prime and less-than-prime customer base.

4. Integration challenges.
Retailers want to be able to add many payment options so that they offer maximum flexibility to their consumers. But the downside to having so many payment methods is that retailers have to spend more time managing the backend and integrating these payment options with existing systems and checkout.

These integration processes can be time-consuming and expensive.

Regarding BNPL, merchants are increasingly looking for a single platform that offers easy integration and supports every checkout stack, from zero-integration virtual card BNPL to simple API integration.

When a platform encompasses multiple BNPL solutions under one roof, it guarantees merchants the flexibility to cater to diverse consumers’ needs. It also gives the retailer access to a gold mine of customer data insights, as all the consumer financing data from different loan programs and use cases are contained in one platform.

Then there is also the common challenge of integrating with in-store POS systems, which often leaves retailers without any in-store solution at all. If they do have one, it is often inconsistent with their online BNPL offering. An omnichannel platform can solve this problem by seamlessly integrating online and in-store, providing a unified shopper experience.

Global merchants also face the unique challenge of having to integrate with a local BNPL provider in each market. The solution is to partner and integrate with a single provider that has global reach.

The Long and Short of it

The BNPL industry is growing, and there’s so much untapped opportunity for merchants and customers alike. To adequately cater to consumer needs, build trust and increase repeat business, merchants need a solution that gives customers the right pay-over-time options and grants them more control over their customers’ experience.

Yaacov Martin is the CEO and Co-Founder of Jifiti, a global fintech company that enables banks and lenders to deploy any loan program at any merchant’s point of sale. He is a thought leader, panelist and active contributor to leading payments and fintech publications. He has authored bylines for TechCrunchPayments JournalThe Fintech Times and The Paypers, among others. 

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