BNPL

Concept #

tags

Fintech

Buy Now, Pay Later (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them at a future date, often interest-free. Also referred to as “point of sale installment loans,” BNPL arrangements are becoming an increasingly popular payment option, especially when shopping online.

• BNPL is like taking loan

• enables Microloans as low as, 50SAR or lower

• It is possible because But thanks to the prevalence of application programming interfaces (APIs) in the financial industry, the process is now as easy and seamless as a credit or debit card transaction.

  • It is contract between customer and BNPL service provider to packback money in installments

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How Open Banking helps BNPL? #

With open banking, lenders have insight into a customers’ bank transaction history, which they can use to better understand creditworthiness and to determine if they can really afford the BNPL financing plan.

This also helps to avoid loan stacking, where a consumer takes on several BNPL financing plans within a short period of time, often leading to the rapid accumulation of debt. BNPL providers are able to set various parameters surrounding approval, like spending limits in line with a customer’s profile. ref

Transparency of BNPL loans to customers and for service providers #

This also helps to avoid loan stacking, where a consumer takes on several BNPL financing plans within a short period of time, often leading to the rapid accumulation of debt. BNPL providers are able to set various parameters surrounding approval, like spending limits in line with a customer’s profile.

Other critiques refer to how easy it becomes to fall into a BNPL debt hole. By facilitating the purchase of big ticket items and without providers knowing how much a customer might have borrowed from its competitors, the total amount of debt can easily spin out of control.

Open banking could solve both of the above challenges. Providers simply need to develop tools that allow customers to keep track of all their BNPL commitments in one place, together with an established system of instalment reminders. Moreover, to better analyse a customer’s status before accepting an application, they can rely on open banking to investigate any other BNPL commitments they might have. ref

How BNPL is different from ? #

• Although they both involve delayed payments, BNPL is different from making a purchase with a credit card.

• When you use a credit card to pay for things, you’re only required to make the minimum payment due on the card each month.

• Interest accrues on the remaining amount (unless you’ve used a card with a 0% introductory APR) until you pay it off in full. But you can carry a balance indefinitely.

• In contrast, BNPL arrangements often don’t charge interest or fees.

• But they have a fixed repayment schedule—generally several weeks or months.

• You’re told upfront what you’ll need to pay each time, and it’s usually the same amount. It’s comparable to any other sort of unsecured personal or consumer loan.

BNPL will save more money of customer #

No interest #

Credit cards will charge interest on remaining balance even after minimum amount is paid #

BNPL is like taking smaller loan without interest #

Credit card the whole loan of purchase is taking at once and interest is applied accordingly #

How BNPL companies make money? #

ref substack

related :

From Sellers or Merchants #

• Merchants pay between 2-8 % of purchase amount to BNPL company

  • Some take 30%

• BNPL companies, like credit card issuers, pay the vendor in full and then recover money from customers

  • BNPL is another payment method like Credit Card/Debit Card/Wallets/COD

  • 2-8% is higher than 1-3% of credit card

From customers #

Transaction fees #

• BNPL in particular makes money with transaction fees.
  • 3-6% of purchase price
  • So, if I were to use BNPL to buy that baggu hat off of Urban Outfitters, Urban Outfitters would have to pay about three to six percent of that purchase price to the BNPL firm.

Late fees #

• If you don’t meet the deadlines to finish your payment, you have to pay a late fee, which is another source of revenue for BNPLs.

Interest #

often don’t charge interest, but can

Current problems? #

ref

• Equifax estimates 51% more on cloths than onlines shoppers
• In UK, because BNPL is unregulated, the services are not under any obligations to perform affordability checks.