Co-authored by Ramki Natarajan
In a previous blog post, we discussed how Buy Now Pay Later (BNPL) forces banks to rethink their credit and payment portfolios. We also touched upon the basic tenets that are essential to consider before embarking on the BNPL journey. This blog will broadly explore what banks need to do to develop a BNPL offer and take it to market. From our experience, we have outlined four key steps banks should undertake to design and rollout a BNPL proposal.
We have explained each step in detail below –
- Determine how BNPL fits with the firm’s business objectives
Banks should carefully consider why they want to offer a BNPL product and its fit into their business objectives. For example, it could attract ‘credit-card-averse’ millennial customers, revive a declining credit card business, prevent existing card customers from switching to BNPL providers, or simply not being left behind. It could also be a stepping-stone product to attract new customers and develop stickiness, with a view to eventually upsell other products like auto loans, mortgages etc.
Strategic objectives must be carefully assessed and articulated, as it determines how the bank designs the product features and customer proposition.
- Develop an offering that aligns with the business objectives
Competitor analysis and customer survey results should feed into the BNPL service offering. The focus should be to determine how to deliver key customer outcomes. Some of the questions that banks should consider while devising a BNPL offering are,
- Can the product be used in POS and at the eCommerce site?
- Are we providing customers quick access to credit?
- Is the overall application experience fully digitized and frictionless?
- What flexibility do we provide for repayments?
- Does it help customers manage their cash-flows better?
- What pricing model do we adopt?
- Are we providing a limit that the customer is comfortable with?
- How are we incentivizing the customer to use the product?
- Will the customer feel confident to take more credit?
- How many and what type of merchants will accept our BNPL payment?
Banks have a competitive advantage through their extensive merchant tie-ups and reward partners, which they should leverage. Other differentiating levers for banks could be pricing and repayment flexibility, which they can play around with given their stable balance sheet and cash-flows. But banks must tread the thin line between creating a competitive offering and being compliant because they are tightly regulated entities, unlike fintech providers. On the application experience front, banks must work through legacy constraints to design an entirely digitized origination process that is at par with fintech providers (more on this in the next step).
In summary, creating a holistic offering would require close collaboration between cross-functional teams like sales & marketing, distribution, credit risk, compliance, and technology.
- Design a frictionless origination and servicing experience
One of the USPs of BNPL is that customers get instant access to credit. A customer in the queue at a POS terminal should instantly sign up for BNPL and get access to credit by the time they reach the counter. The whole signup process should not take more than a few minutes. It should be an utterly digitized application journey with minimal data entry from customers. New customers should be able to signup by providing basic details like name, email ID, contact details, and most of the other information like financials, ID verification, etc., should be derived from trusted third-party sources. For existing customers, all personal and financial information must be prepopulated. Instant KYC and real-time AML checks must be embedded in the application journey to screen out suspicious customers upfront. Credit underwriting should be fully automated to enable real-time decisioning. Once approved, customers should get immediate access to digital cards that can be added to Google Pay or Apple Pay before they start shopping. To achieve such a seamless and fully automated origination process, several technological capabilities are required across customer onboarding, application, underwriting, and fulfillment. Some of the vital technological capabilities to be considered are depicted below.
While origination is a one-time activity, servicing experience for customers is equally important to encourage repeated usage of BNPL payments. Many customers are opposed to credit cards because they don’t trust themselves with them. They are concerned about losing control of their spending and getting into a debt cycle that accumulates high interest and late fee charges. Integrating budgeting tools into BNPL apps could alleviate these concerns. Features like managing repayments, expense tracking (weekly/ monthly), setting limits, repayment notification, discount hacks, etc., can empower customers to monitor their cash-flows and meet repayments on time. In addition, use cases like setting pin, limit changes, personal detail changes, etc., should be integrated into the app for customers to self-serve when needed.
Digital self-serve experience for customers is crucial to ensure that repeat usage of the BNPL payment is as delightful for the customers as the initial signup experience.
- Devise a robust rollout roadmap
- Business features: It is critical to envision what features could form part of the initial launch (MVP) and what could come in the future for a BNPL offering. The pilot launch could be kept conservative by targeting existing card customers by extending features like fixed card limit, one repayment frequency (monthly/fortnightly), auto-debit, etc., to gauge the appetite. It could then be extended to a new customer with advanced features like eligibility-based limit, the flexibility of repayments, auto-debit from an external account, rewards, etc., in subsequent releases. The exact sequencing of features could vary depending on the specific business case benefits the bank is trying to achieve, and therefore is difficult to put in a one-size-fits-all approach.
- KPIs: Measuring the adoption and usage of BNPL payments post initial launch is crucial as it provides opportunities to course-correct where needed. Percentage of activation within the eligible customer base, customers who spend using BNPL, customers who do repeat usage, customers who meet repayments on time, and other customer feedback are key metrics to determine the appetite of the offering in the market.
- Technology: On the technology capability front, features like electronic consents, automated onboarding, digital form, real-time decisioning, AML checks, and instant access to credit are some capabilities that could form part of the initial launch to enable an utterly digital origination journey. AI/ML based transaction scoring for advanced decisioning, Open banking-driven financial verifications, biometric authentication, digital IDV, etc., could be considered for future enhancements to strengthen the offering further. Different banks are at varying levels of maturity on their existing technology ecosystem, and therefore prioritization of the capabilities would also depend on the implementation complexity and commercial viability.
In conclusion, implementation approaches will vary across each bank. However, following the four key steps above is imperative for banks to go to market successfully with a holistic customer-centric BNPL offer.
Raju has around 12 years of business and technology consulting experience primarily in Retail banking, Consumer finance, Mortgages ,Commercial banking and Wealth Management. He has executed a number of advisory and business transformation projects for leading financial institutions across US, India and Australia. Key areas of experience include Digital strategy , Business Design, Vendor evaluation, Core banking transformation, product management, IT strategy and roadmap, Agile delivery and project management.
Ramki is a Principal in our APAC region focused on Banking, specifically Mortgages. He has 15 years of experience designing and delivering process and technology solutions that address business requirements of various banks and other financial institutions. Experience includes Business Process Transformation and Technology transformation in the areas of Mortgage Origination, Billing, Regulatory Reporting and Business Intelligence. His current learning interests include Lean Design, Digital transformation and Value Chain Management, etc.