Re-analyze when PayPal is making more traffic
Buy Now, Pay Later (also known as BNPL) as a consumer financing option – and importantly a marketing tool for traders – is a relatively recent arrival in the scene, if also fresh branding, of a not-so-new idea.
Re-analyze Buy now, pay later as PayPal makes more traffic
Payment log Re-analyze Buy now, pay later as PayPal makes more traffic
PayPal June 15 announcement A Pay Monthly product that allows customers to make a purchase and terminate payments for a period of 6 to 24 months, proved to be a good starting point for the PaymentsJournal Podcast Show discussion, in which three veterans of the consumer credit market and related technologies participated:
- Brian Rileydirector of the credit advisory department at Mercator.
- Apur ShahSenior Director of Merchant Development at PayPal.
- Randy BroadbentNational Account Manager / Solution Advisor at Zoot Solutions, the assistive technology in the PayPal offering.
PayPal’s initiative comes as soon as BNPL offers are undergoing changes. Initially driven by younger consumers who were attracted by the decision without a creditworthiness assessment, BNPL took steps to follow the more traditional aspects of consumer credit.
Riley, Shah, and Broadbent discussed a number of topics including what PayPal saw in the BNPL space prompting a new offering, the challenges of making credit risk decisions and underwriting BNPL’s services, how players in the space are shaking, and the buyers’ perspective and the way they run BNPL.
After all, as Riley pointed out, this is a merchant-oriented payment proposition, which is a change that BNPL is applying to older, similar, customer-focused financing models.
“It really changes the transaction center,” said Riley. He said it was good news and bad news. Thanks to BNPL, traders managed to acquire completely new customer segments. On the other hand, when taking decisions that have not always been in line with the usual consumer credit standards, there is a “soaring risk”.
Up-to-date view Buy now, pay later (BNPL)
Shah noted that BNPL’s foundations are nothing new to PayPal, pointing to its acquisition of Bill Me Later in 2008. went into rebranding as PayPal credit. However, he made a distinction between how BNPL was used before the pandemic and how it is evolving now. Previously, he said, his main focus was on younger demographic groups and their interests: “Fashion, electronics, home, some travel.”
“What we see now,” he said, “partly because of the pandemic and partly because new, larger entrants are entering the space, it is an adoption across all consumer segments and across all industries. “
In fact, said Shah, BNPL is “essentially a loan product. You need to know how to run this business… if you want to be able to scale in space. ”
Shah sees the rise of BNPL ahead of him, even with the current economic uncertainty. The new PayPal offer is resizing, allowing for larger ticket purchases stretched over longer repayment periods. “It’s not about Buy Now, Pay Later or Growing,” he said. “It’s just how it grows, is it growing responsibly, and how it changes to meet the demands of the cycle we’re going through.”
Decision making and risk
Broadbent traced the modern iteration of BNPL to millennials and younger consumers who embraced it, lured by a no-credit entry into a purchase contract – or, as Broadbent put it, “if you can fog the mirror, go ahead. , financing. “
However, in Europe, where this version of BNPL started, regulators and credit bureaus began to pull back, positioning the vehicle in the more traditional retail loan underwriting. In the United States, the bow follows suit.
The challenge for BNPL suppliers, Broadbent said, is to apply more traditional lending rules while creating a seamless experience for consumers and merchants looking to sell them products. The characteristics of these experiences are:
- Instant decision making
- Hassle-free experience
- Ease of use (i.e. the payment solution is integrated at the point of sale)
“The crux of all of this is the idea that we need flexible rules,” Broadbent said, one that allows lenders to react when the consumer is underwater and when fraud is committed.
Riley noted that more traditional lending rules would also help ensure traders had a relationship with consumers. “Anyone passing the turnstile” can artificially increase the ranks, but “the hope with customer relations is that it will last for a while,” Riley said.
Current status in Buy now, pay later Vendor space
While BNPL’s easy view may be that the dominant players are fintechs and other newcomers, while more traditional companies enter the market more slowly, Riley advocated a more nuanced view. For example, PayPal is both a fintech and a maturing company.
“From a merchant’s point of view to his source of financing, a merchant needs someone to be there tomorrow, next year, and a year later,” he said.
Shah said that was the view taken by PayPal to extend its credit offering with Pay Monthly and flexibility with larger purchases and longer payment terms. He said the company was well placed to prosper as the more traditional credit community settles accounts with BNPL.
“Working with regulators, working with credit bureaus are only part of what you need to do to run a good business and maintain responsible growth,” he said.
“From a merchant’s point of view, doing business with these more established suppliers can build or damage your own reputation in the long run. We think we have a pretty good chance of being the best player in space.
The merchant’s perspective
Merchants want customers and sales. Customers want payment flexibility. BNPL meets the need.
“Customers will always pay what they want, when they want,” said Shah. “That’s why people have so many different payment methods in their wallets.”
In the case of BNPL, even with tighter credit decision-making standards, the checkpoint is shifting, he said, offering a way for consumers who may qualify for a loan but are averse to fees, interest or long-term debt.
Added to this is the marketing power of BNPL and its ability to attract new customers to markets, both online and in physical stores.
“You can’t ignore the power of this merchandising tool,” said Shah.