Over the last couple of years, BNPL- characterized by a Point-of-Sale Micro loan that can be paid later in interest-free installment - has seen an explosive growth in its demand due to a combination of forced-digital (due to the pandemic) and a move away from brick & mortar stores. The packaging of BNPL makes it irresistible for the customer, with a combination of interest-free credit, zero-documentation and a seamless integration with their check-out process.
The very convenience that makes BNPL financing an attractive option to consumers makes it risky to providers. Many product areas of BNPL are relatively unregulated compared to other forms of consumer credit, resulting in BNPL catering largely to an underserved market. A PYMNTS report highlighted that financially underserved consumers are 3 times more likely to use BNPL options at checkout. Additionally, the convenience often leads to consumers overspending often beyond their financial means which often results in missed repayments. In the UK, more than 1 out of 10 customers in a major bank using BNPL are already in arrears.
The whitepaper - BNPL , written in collaboration with IBS Intelligence highlights the various risks associated with BNPL and recommends a 3-Dimensional risk management framework that financial institutions must consider in order to ensure a profitable BNPL proposition.