Buy Now Pay Later: Risk or Reward?

Although the number of Buy Now Pay Later (BNPL) providers has exploded over the last two years, BNPL only represents around 2% of the value of consumer purchases in Australia. This highly competitive small share of unsecured lending continues to attract new players drawn by strong consumer demand for flexible payment options. 

We asked Alberto Fernandez, Head of Insights at Latitude Financial Services, to share his thoughts about the risks and rewards of operating in this space. Latitude is a long-standing point of sale provider with a BNPL payments platform, Latitude Pay, launched in 2018.

The trends behind the boom

An amalgamation of trends has created a boom of opportunities for BNPL, Fernandez says. 

“The first is a long-term trend towards mistrust of institutions, from banks to government”, he said. “Consumers were already moving away from institutions when the pandemic hit and online shopping accelerated. Buyers suddenly wanted to make purchases right away with no delays.” 

Not needing to jump through hoops to get credit was an alluring prospect to those consumers already disenfranchised by traditional financial systems. “BNPL was able to fulfil people’s small credit demands quickly and easily,” he said. 

Fernandez said that the fourth trend is one that few anticipated. “The smooth customer journey of BNPL keeps customers returning for more. Not only is the process of logging in and signing up straightforward, but once inside the platform, they can access offers and discounts which add to the customer experience.”

BNPL providers reap the benefits of credit checks
 
How to solve the friction between hassle-free and responsible lending? Fernandez feels strongly that credit checks go hand-in-hand with responsible lending. He says that Latitude runs credit checks for all their products because it gives them access to critical information for decision-making.

“We acknowledge that it’s vital to minimise user friction to make the process easier, but we don’t believe this has to come at the price of responsible lending,” he says. “Technology is helping us to bridge this gap.” 

Fernandez said that it was interesting to see that it’s the BNPL providers doing the credit checks that are reaping the benefits. He explains the benefits as threefold. Firstly, credit checks help break the debt cycle by assisting consumers with sensible and wise spending. Secondly, merchants can feel confident that they are selling to customers who can afford their products. And thirdly, “to ensure Latitude has longevity in the market, providing quality services for years to come”.

Future BNPL customer segments

With BNPL already saturating many categories, we asked Fernandez to gaze into the future and tell us what new market segments will likely embrace BNPL. 

He predicts that a growing cohort of users will be drawn to BNPL because they want to control their finances and see the concept of paying in instalments as a budgeting tool. 

“We’ve also seen growth in BNPL usage in certain industry segments like health and solar,” Fernandez said. “Also of interest is the increasing use of BNPL for green loans, to help raise capital for sustainable purchases like electric vehicles and solar batteries.”

Fernandez said another emerging segment would be consumers who found it too complicated to get other forms of credit. “BNPL gives people the opportunity to get their training wheels on for learning how to borrow money and pay it back.”  

Listen to our Go Talks podcast – BNPL Risk or Reward – for the full interview. Don’t miss Fernandez’s fascinating reveal into how BNPL providers can establish customer loyalty in this competitive market.

For more information about Equifax solutions for BNPL providers, click here to contact our team.