It’s not a secret that BNPL products have gone mainstream through the last few years. The pandemic and its aftermath changed the rules of the game of consumers’ shopping habits. Since then, they have made more online purchases than before the crisis, while offline purchasing has been going down. Accordingly, people’s credit and payment preferences changed as well, as we can already say that those will outlive the pandemic.

Today, we will go through our latest research data on consumer purchasing habits to date and gain insights into the phenomenon of BNPL from it. Also, we will see the challenges this budding vertical struggles with so far, and give tips on how to solve these — with the help of the Paydit debt collection solution. Without further ado, let’s start.

The Stats Speak Louder than Words

Per the CFPB’s last year report, the pandemic caused a sharp decrease in credit card approval rates for consumers looking to open a new credit line. Amidst the recession and overall economic uncertainty, credit card issuers tightened the underwriting rules, which resulted in an approval rate as low as 36% in 2020 (however, that was a relatively slight drop compared to 2019, where the approval rate accounted for 41%).

At the same time (and partially due to that fact), consumers’ dissatisfaction with credit card issuers grew because of high interest rates, tightened credit limits, and, of course, their (consumers) changing demands and expectations.

In California, for instance, the demand for traditional consumer loans went down by 41% from 2019 to 2020. Meanwhile, online loans demanded for the same period increased by 1,6%, taken predominantly to purchase BNPL products. Moreover, in 2020, 91% of all consumer loans in California came from the top six BNPL lenders, so one may estimate that at least 44% of Americans have tried a BNPL product. Impressive, doesn’t it?

Klarna, Affirm, Afterpay, and some other BNPL lenders allow consumers to split any purchase from their merchant partners into several installments at points of sale and repay the loan through credit or debit cards. Typically, it’s not difficult for customers to find BNPL products to purchase as merchants promote them on their websites. Merchants especially like BNPL products because they notably increase the average order value and cart conversion rates.

BNPL Products and Their Nature

BNPL products are easy to use. Merchants can seamlessly integrate them into their online stores, allowing customers to evaluate them on the go while at checkout. Typically, BNPL products don’t require a credit check to qualify, which makes them accessible for customers with a “bad” credit score.

Thanks to flexible repayment plans, BNPL products introduce a new way for consumers to manage their cash flows. Consumers who are out of pocket on the purchase can make a small upfront sum and then pay the rest in installments.

    What Happens Upon BNPL Default and Recovery?

    Of course, some consumers may default on BNPL loans, the same way as with credit cards. However, the risks of default are generally lower since the average BNPL balance in collections is roughly 8 times lower than the average credit card debt; that is, BNPL balance is easier manageable than large credit card balances.

    But if a BNPL loan default actually takes place, the effects can be really adverse:

    • Although BNPL products are not subject to the same underwriting factors as credit cards, some BNPL lenders, however, report missed payments to credit bureaus. Needless to say, this adversely affects credit score.
    • Even if lenders don’t lodge any complaints about missed payments, those will still harm consumers by overdrafting from accounts with automatic payments set up. Overdraft, in turn, can make the use of BNPL accounts impossible and cause late fees.

    Given this, BNPL providers do their best to create a positive, satisfying customer experience, even in collections. According to our consumer survey, an average BNPL consumer has dealt with six BNPL providers over the last 12 months. The fact that consumers readily change providers and do so frequently makes the question of their retention a top priority.

    With our Paydit debt collection platform, you can easily collect debt from BNPL consumers and engage them to come back to you every time they need it by providing them with the following elegant solutions:

    • A variety of contact channels. For example, texting in collections is limited due to compliance issues. However, adding it to email-only communications is fully compliant and even shows repayment improvements of more than 230%.
    • Highly flexible repayments. A significant boost to consumer retention! Paydit’s flexible repayments allow lenders to provide custom plans to consumers according to their needs and budgets. As a result, targeted repayment plans lead to a 12% higher repayment rate in the first 60 days (based on our research).
    • Finally, with a wise combination of content and communication channels provided by Paydit and by regaining their access to BNPL services, you can increase the repayment rate by 11% and even more.

      A few words about initial correspondence in BNPL collections; here, emails prove themselves even more efficient than in cases with credit card accounts. Paydit’s experience shows that the average email open rate for BNPL consumers in debt is 32% higher than for credit card accounts. Meanwhile, the click rate for BNPL is 40% higher. Why such a gap? The most likely reason is digital-only acquisition and servicing in pre-default, while with credit cards experiences take place beyond digital as well.

      Higher engagement makes better repayment rates. According to our statistics, the number of consumers who make a payment is more than double the like-size credit cards at 30 days post-placement and 50% higher at 90 days.

      In Conclusion

      When compared to high-interest credit card loan offers, BNPL installments seem a more reliable alternative. Although popular already, BNPL is likely to attract even more consumers soon. Why? Because BNPL introduces an attractive opportunity for financial service providers to design a new payments network that works for consumers, rather than against them. With a focus on creating a seamless user experience through the BNPL account’s life cycle (including consumers in default), BNPL companies will engage consumers to stay with them. No wonder the use of these products will continue to rise.

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