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How Can Banks Digitize to Promote Buy Now Pay Later Subscriptions?

Buy now, pay later (BNPL) is the fastest-growing 'online payment method' in India, predicted to rise to 9% for all online payments by 2024. Banks turning a blind eye to its rapid adoption are undermining the competition, as well as opportunities, it brings to the credit space.

New-to-credit customers are the payment method's biggest market, with other age groups increasingly buying in on the idea. The biggest driver is that BNPL offers lower-than-ever interest rates, mostly closer to nil. In the credit space, BNPL is an option that offers credit without the taboo surrounding debt.

To understand other drivers, investigating evolving customer behavior is key. Data-intensive customer engagement, here, helps Banks hold their ground in fierce digital environments.

Banks are on the Greener Side of Regulatory Compliance

Buy now, pay later (BNPL) service providers have partnered with NBFCs to extend credit to consumers. Most BNPL services are offered by Fintech companies yet to face the scrutiny of regulators. The amount of debt they issue and to whom is still unregulated.

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

Furthermore, some buy-now-pay-later programs have bad reputations which affects the service's image negatively. Here, traditional banks have seized a golden opportunity. They offer similar BNPL programs under the trusted name they have built over all these years.

What Should Banks Consider about Buy now, pay later?

As digitization intensifies, customers expect banks to be omnipresent. This allows newer entrants to enjoy niche segments, while, traditional banks are tasked with competing in digital environments.

On a positive note, even in changing times, Banks are still trusted for wealth consultancy, protection of assets and much more. This trust creates a space for traditional names to focus on offering their clients a hassle-free journey into digital 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 explore the benefits of offering choices to customers, new areas of study show that both payment methods co-exist and complement each other. The option 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. Here, data-intensive customer engagement is the only option for lenders to make the most of the ever-growing segment.

Analytics Gage Potential for New Markets and Customers

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 installments.

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.

Banks can monitor such scenarios for 'utility bill payment history' and 'cash-flow analysis'. In the case of BNPL, banks leveraging CRM analytics can study how and why consumers opt for the service.

New Age Analytics for Insights to Enhance Marketing Strategies

Whether digital or not, lending processes are expected to prevent clients from taking on bad debt. Once lenders adhere to the guideline, safer transactions for borrowers, customers, and merchants come to be recognized as the lender's priorities. Data-intensive customer engagement helps with just that.

New age ADF and MIS Systems provide integrated data, offer an enterprise-wide view of assets, client behavior, and risks. Banks can now accelerate data-to-information processes to equip major marketing decisions with valuable insights.

Risk-Evaluating Analytics for Accurate Evaluation of Customer Segments

As new Fintech services gain widespread adaptability, cutting-edge solutions simplify things further. BNPL may be a new-and-improved service, but for Banks it is an opportunity to offer choice, which is an unchallenged parameter for better customer engagement. Especially, at major brand contact points where credit billings can be replaced.

In this scenario, banks can pit technology against technology and put in place risk-based systems to handle detailed quantification of customer segments. Risk-calculating market intelligence eliminates the worry around defaults, even from new-age credit offerings.


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