Buy now, pay later (BNPL) has been on the scene for over a decade, starting off as private-label cards in department stores, and, more recently, making its way into the mainstream with the development of its own market. Over the past few years, the financial uncertainty that the pandemic has created acted as a catalyst for its growth and BNPL has been on the up and up ever since. As the generational shift continues into the Gen-Z era, where budget-consciousness and the digital perspective thrive, so does the demand for interest-free payment options, further driving the interest in the BNPL sector.
What is BNPL?
BNPL is a platform that gives consumers the opportunity to buy what they want now, while paying for it in instalments across a fixed period of time. These payments could take place weekly, fortnightly, or monthly, depending on the service provider. This form of payment is more appealing to consumers as they will not be charged any interest on their purchase, nor will they have to pay any fees for using the service. The process of paying for the item is fairly similar to layby, but consumers do not have to wait for the payment to be completed before receiving the product. This reduces their financial stress and increases their likelihood of purchasing more goods, benefiting not only them but the merchant as well.
How to maximise the benefits of BNPL
There are many benefits involved in BNPL applications. These facilities are easy to sign up with, they offer a form of financial relief, and they have partnered with merchants across the globe. As a consumer, maximising the benefits of BNPL lies in responsible purchasing behaviour. These facilities are intended to assist consumers with their expenses, but this could lead to overspending if the consumers are not careful. To maintain the advantage offered by BNPL companies, consumers should ensure that they are disciplined when it comes to paying instalments, for the benefit of their standing with the merchant, and to avoid their risk of penalties. On the other hand, merchants can also maximise the benefit of becoming a partner by ensuring they go into business with a top-rated BNPL company – one that keeps their best interest in mind by implementing stringent authentication measures for fraud risk management .
BNPL and digital customer onboarding
The BNPL sign-up process is simple to complete, and the process can be started at checkout. The consumer will fill out a very short application with their chosen BNPL platform, providing details such as their name, address, phone number, and ID number. Once these details have been shared, the BNPL provider, using real-time digital verification services which have been integrated into their IT systems, will match this data against their list of approval criteria, verifying the consumer’s identity and their ability to make payments. The following verification methods are typically used:
- BNPL and ID verification
Using real-time digital ID verification (IVS) is an effective way for BNPL platforms to reduce the risk of fraud while onboarding customers in real-time. Consumers making use of BNPL applications will be required to provide proof of identity along with their ID number. IVS matches the data provided against the data for that individual listed at Home Affairs, which allows BNPL providers to spot falsified IDs. - BNPL and facial verification
Biometric facial recognition software may be used as an extra layer of protection against identity fraud. Consumers will be required to provide a selfie image which is then matched against their Home Affairs image using AI, and provides a match score. If the score does not meet the BNPL provider’s specified range, the account application will be flagged for further verification. - BNPL and bank account verification
The BNPL providers often use bank account verification (AVS) , which ensures that the identity of the account holder matches that of the person applying for the BNPL service. This is an additional fraud prevention method adopted by service providers to prevent fraudsters from using illegally obtained bank account details to make purchases. - BNPL and credit checks
Finally, all the above verification methods paired with a soft credit check will allow the BNPL provider to make an informed decision of whether to onboard the customer. The credit check will not affect the consumer’s credit score.
Consumers may ask why these approaches are necessary, but providers understand that these are crucial precautionary measures needed to reduce their risk of fraud exposure and to comply with strict Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations. As digital becomes more prominent in today’s society, so do the risks of being swindled by fraudsters. So, as BNPL continues to rise, it is in the providers’ best interests to protect themselves.
The facts and figures of BNPL in South Africa and across the globe
Some of the most popular BNPL companies across the globe include PayPal, Afterpay, Affirm, and South Africa’s very own Payflex. PayJustNow was the country’s very first BNPL platform, founded in August of 2019, but Payflex was launched shortly afterward and is considered the largest BNPL in the country to date. Since its establishment, it has grown from just 70 merchants to over 1000 merchants with a growing customer base of over 135,000. These are just the figures for a single company within the past few years. According to a survey conducted in Q4 2020, it was projected that South Africa’s BNPL payment would grow by 52.5% annually, reaching approximately US$ 268m in 2021. In a more recent survey, the percentage for annual growth in 2021 had increased to 97.5%, reaching US$ 457.3 million in 2022.
What’s next for BNPL?
Due to the pandemic, South Africa has seen an increase in unemployment and a decrease in income levels. This has shifted the focus to financial solutions such as BNPL that reduce the risk of consumers falling into debt. These circumstances have placed the BNPL industry in an optimal position, and it is now projected to steadily grow into a billion-dollar market by 2023. There is also talk of other BNPL projects underway, including a plan for Experian – a Bitventure partner for credit scores – who, according to an article released by The Paypers , intends to launch a BNPL bureau. Their objective is to provide a means of improving the accuracy of secure onboarding without jeopardising consumer credit scores. Thus, the future of BNPL is looking bright for BNPL companies, merchants, and consumers alike.