October 7, 2021
A man should first direct himself in the way he should go. Only then should he instruct others ~ Buddha
Old fashioned lay-a-way made so much sense, a way to reserve your product, and pay for it when you actually had money, thus taking possession. It gave consumers time to rationally think about the necessity of the purchase and time to budget the appropriate money. Lay-a-way was a safeguard against impulse buying and going into debt, a fear today that doesn’t resonate as much with consumers or merchants. As a result of Covid, online shopping grew-up, and the Buy Now Pay Later (BNPL) market arrived or rather exploded on the POS scene giving credit cards a run for their money.
GoCardless, Ltd. a London-based global fintech, reports that “76% of U.S. consumers prefer to limit their usage of credit cards.” Kevin Woodward, author of the article, Is BNPL Eating into Credit Cards, reports their motivation comes from wanting to reduce debt and the challenges with paying the monthly minimum installments on time.
Hiroki Takeuchi, CEO of GoCardless, believes that “a seismic shift” in credit card usage is underway, inflamed by the pandemic and the younger generations’ (ages 18-40), 88% preference for debit card usage.
The BNPL process starts with an instant credit decision allowing the approved customer to take possession of the product and pay with no-interest installments. However, there are lots of challenges with this new method of purchasing goods including: weak consumer approval, late returns, payment defaults, collections, to name a few. According to a recent study by Credit Karma for Reuters, “a third of U.S. consumers who used BNPL services have fallen behind on one or more payments, and 72% of those said their credit score declined as a result.” Some BNPL companies charge excessive late fees on missed payments so it’s important to choose the appropriate BNPL company and to understand all their supporting policies.
Returning BNPL products could be complicated, especially if they are used. The return policy will vary with each merchant, with some not allowing exchanges. There seems to be a disconnect between some merchants and their BNPL providers, angering customers who aren’t receiving their refunds in a timely manner. Another question that arises is how will defaulted payments be handled; will they go to collections; will they impact credit scores?
BNPL is in its infancy and will continue to mature and resolve its growing pains. The biggest step forward BNPL can take is at ground zero, the upfront payment approval process. Make sure the customer can genuinely afford the installment payments BEFORE giving an imprecise approval. Otherwise, merchants are setting themselves and their customers up for failure down the line.
RIBBIT.ai, a company that empowers smarter financial decisions by analyzing bank data, offers a comprehensive, in depth, alternative-data model for payment approval. This bleeding-edge, predictive service significantly increases payment accuracy without impacting credit scores, offering BNPL companies a huge advantage over the current, static credit models. Using RIBBIT’s approval process at the start will drastically decrease the dominoes from falling at the end of the BNPL process.
Stay tuned . . .
It’s great to be great, but it’s greater to be human ~ Will Rogers
One of my father and husband’s favorite TV characters was Andy Rooney, who appeared at the end of every 60 Minutes episode with a short critique on the condition of the world. Andy was the dessert at the end of the informative and serious news program, culminating with a rise of his bushy eyebrows, a twinkle in his eyes, and his witty, often acerbic insights about the way things were. And was often said, he could say so much with just a few words.
Tomorrow doesn’t matter, for I have lived today ~ Horace
A young, grey cat with the greenest eyes wandered into our yard last week and made serious eye contact appearing to ask for my assistance. Not particularly a cat lover, I hoped she would go away, but after hours of continual pacing and meowing, I poured some milk into a bowl. Needless to say, Greyling knew she had found a friend and yes, I did name her.
Success is a ladder than cannot be climbed with your hands in your pockets ~ American proverb
In a country often filled with broken promises and lip service, it’s refreshing to look at the track record of the Electronic Payments Association (NACHA), who introduced Same Day ACH for credits 5 years ago. NACHA, the rule maker and governing body, for most financial transactions in the U.S., promised yearly enhancements to Same Day ACH including adding debits, expanding the hours to submit payments, and increasing the dollar limit for each payment. The payment’s world salutes NACHA for their honesty, transparency, commitment, and follow-thru.