In the financial world, customer loyalty is typically reserved for the more traditional, well-known institutions, such as banking or wealth management. However, there is a relative newcomer that is moving quickly up the financial community. Buy Now, Pay Later (BNPL) has now become an emerging lending tech sector due to the rapid increase in e-commerce and digital payments.
Moreover, because of the ease of access to credit, BNPL adoption has become popular among young consumers. Gen Zers, younger millennials, and first-time credit borrowers are often overlooked by banking institutions, so they turn to BNPL providers to manage finances and make important purchases like smartphones.
Unlike traditional loan offerings such as credit cards, BNPL plans do not charge interest or fees. They have a fixed repayment schedule, generally several months, making it a workable option for consumers.
BNPL unlocks smartphone purchasing power
Over the past decade, smartphones have revolutionized everyday lives. From managing daily finances to ordering groceries in ten minutes, people can do just about everything from the palm of their hands. Consequently, consumers just can’t stop buying smartphones after their lifespan ends. But rising prices of smartphones have made it difficult for most to purchase one outright.
The ability to "spread out" the expense of a smartphone purchase is one of the appealing features of financing a smartphone with a BNPL plan. This sentiment is common across different income groups. People who can afford to buy a phone outright are just as likely as consumers from lower economic standing, with no access to conventional credit, to use BNPL to manage their finances. [1]
BNPL financing saves money as some providers don’t charge any upfront fees for short-term installment plans. Few BNPL players partner with smartphone manufacturers encouraging customers to try before they buy. Affirm and Samsung, for instance, offer a 21-day trial period with financing for three months. [2]
While most BNPL platforms do not require a credit check for short-term installment plans, others may require a soft credit score to screen for longer, 24-month financing options.
BNPL: An invitation for risky customer behaviour
BNPL players are now facing a more challenging macro environment with inflation, rising interest rates and other economic uncertainties. On one hand, BNPL providers unlock purchasing power to help consumers obtain smartphones by accessing affordable, low-cost credit. On the other hand, there are risks associated with installment lending.
Since consumers do not need to have a minimum credit score to use a BNPL app, the main challenge of providers is to refrain people from overuse. Juggling multiple installments from several BNPL providers increases the chances of a payment default.
If a customer misses a payment, it can negatively affect their credit score and there can be financial penalties for late payments. Plus, there would be no incentive for manufacturers or merchants to finance smartphones using BNPL financing if borrowers fall behind on payments.
Can smartphone locking technology manage risk?
The set business model of BNPL providers has most of the operating income coming from merchants. They need a revenue assurance mechanism to ensure all sales from BNPL plans have a minimum default rate.
BNPL providers could look at the technology that can provide unlocked smartphones at the point of sale and then change permissions in the event consumers fail to make timely payments. Smartphone locking technology works in the interest of merchants and manufacturers to solve a problem that is exacerbated by scale.
A small percentage of missed payments per smartphone can have cascading effects of millions on a company’s top-line revenue.
BNPL providers should make use of smartphone locking technology for encouraging customers to make timely payments. In case a customer misses their payment, the solution enables providers to restrict certain features such as Wi-Fi or internet, while retaining the phone’s ability to send SMS and make phone calls.
BNPL companies should support the merchants or smartphone companies because customers have purchased smartphones under their directive in the hope that they will complete the entire financing term.
Wrapping up
BNPL is accelerating the adoption of financing options. Its popularity indicates a shift in its perception from a loan instrument to a lifestyle choice. The combination of easy installments and smartphone locking technology could be a unique selling proposition for BNPL providers to aid revenues from smartphone financing.
Resources:
[1] https://www.bain.com/insights/assessing-benefits-and-challenges-bnpl-report-2021/
