BNPL from Fintech vendors: What are the four serious implications for retailers?

Offering buy-now-pay-later (BNPL) loans and split payments can be a key 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 can go wrong?

The thing is, there is no dearth of BNPL companies. And since they are not cut from the same cloth, choosing the right solution with the best results can be a challenge.

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

1. Bad customer experience.
Merchants are increasingly aware of certain issues that should be considered when working with BNPL direct-to-consumer providers in terms of sacrificing the customer experience to a third-party provider.

About 70% of consumers who have used BNPL financing have ended up being charged interest by fintech companies or paying fees for missed payments. This raises questions about whether merchants will risk alienating customers with a negative financing experience, one that is beyond their control.

BNPL is not managed in the same way as credit cards or other personal financial instruments; it only uses surface-level credit checks, and there are often transparency issues.

Merchants and consumers need POS financing solutions that are simple and transparent from the start when it comes to repayments and data sharing.

By offering white-labeled BNPL products from regulated financial entities, merchants can retain control of the customer experience, build consumer trust, enhance their own brand image and put data and customer ownership back in their own hands.

2. Lower pay-over-time approvals.
Merchants who offer POS financing can increase customer conversions by maximizing approval rates. However, if a customer’s finance application is not approved by a BNPL service set to the till, it can leave a bad taste in the mouth, often towards the seller 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. Since not all consumers qualify for prime lender financing from Tier One banks and lenders, a single borrower or single loan offer just won’t cut it and often results in lower approval rates.

A waterfall multi-lender BNPL solution can remedy this and hit consumers who are close to prime or less than prime.

Here’s how it works: If a customer doesn’t qualify 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 dealers to sign a direct agreement with each lender in their waterfall. This ensures the most competitive prices as well as full control and transparency for the seller.

The largest online retailers that already offer or want to start offering point-of-sale financing and shared pay will begin to see multi-lender and consumer financing as a need to improve customer acceptance rates and consumer purchasing power. Sellers need to cater to different customer needs, but a single borrower 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 typically won’t apply for consumer financing)?

With different consumers, products and ticket sizes, one funding solution from a major fintech is sometimes not enough. As there is intense competition in the retail industry, it is important to offer a full range of varied, personalized BNPL options to satisfy different needs.

While POS loans are a good fit for bigger-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.

Shared salary 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 without interest, leading to increased cart sizes. It becomes a case of “Why not?”: With split payments, they can better manage their cash flow without additional costs or hassles.

By expanding POS offerings to include everything from shared 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 range of loan programs from top lenders and cater to the needs of their super-prime and sub-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 of 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.

In the case of BNPL, merchants are increasingly looking for a single platform that offers easy integration and supports every checkout stack, from zero-integrated virtual card BNPL to easy API integration.

When a platform encompasses multiple BNPL solutions under one roof, it guarantees merchants the flexibility to cater to different consumer needs. It also gives the retailer access to a goldmine of customer data insights, as all consumer finance data from various loan programs and use cases is brought together in one platform.

Then there is also the usual challenge of integrating with in-store POS systems, which often leaves retailers with no in-store solution at all. If they have one, it is often inconsistent with their online BNPL offer. 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 supplier in each market. The solution is to collaborate and integrate with a single supplier that has a global reach.

The long and short of it

The BNPL industry is growing and there are so many untapped opportunities for both sellers and customers. To satisfy consumer needs, build trust and increase repeat business, merchants need a solution that gives customers the right pay-over-time options and gives them more control over the customer experience.

Jakob Martin is the CEO and co-founder of Jifiti, a global fintech company that enables banks and lenders to implement any loan program at any merchant’s point of sale. He is a thought leader, panelist and active contributor to leading payment and fintech publications. He has written bylines for TechCrunch, Payment journal, Fintech Times and The payersamong others.