• Martin Magnone , CEO at Tymit


• 24.01.2023 04:45 pm
#credit

People love paying in instalments, this isn’t anything new. And the latest version of this offering, buy now pay later (BNPL), has taken the world by storm. Around 17 million consumers have used BNPL instalments in the UK alone.

This comes as no surprise. With the current economic climate, people have a need for financial flexibility that is largely underserved by more traditional finance. As such, merchants are using BNPL offerings to drive business growth, often risking getting left behind if they don’t, and many consumers are turning to BNPL to try and make up the difference between earnings and spending.  

However, as we start 2023, this form of irresponsible credit can no longer be the answer. BNPL isn’t doing customers or merchants any favours. It’s time to follow the ‘new year, new me’ mantra and make this form of credit more responsible and give everyone the fair instalment credit offering they deserve.  

Merchants’ backs are up against the wall   

It’s understandable why many merchants want to ride the instalment wave:  it drives business growth. The popularity of BNPL has skyrocketed and merchants that haven’t yet added this payment option to their checkout risk not only getting left behind, but also potentially losing customers. This is resulting in many businesses having little choice but to hitch themselves to the BNPL bandwagon or risk the success of their business.

However, the problems with BNPL don’t stop there: the truth is that the big players, such as Klarna and Afterpay, are building their own customer base and growing customer loyalty around their own brands off the back of their relationships with merchants. To top it all off, they charge merchants extortionate fees in the process, who are inevitably forced to increase their prices to cover them. Merchants and consumers foot the bill for the whole setup. 

In light of these harsher times, BNPL providers have helped put merchants in a no-win situation. And as hard as it might be, it’s time for merchants and this flavour of instalment credit to go their separate ways.  

Irresponsible credit is hurting consumers 

Regulation for the BNPL industry is on the way. Despite the lack of clarity on timings, both BNPL providers and users are holding their breath to see what changes it will bring. However, in the meantime the problems and issues plaguing consumers, which should be solved with regulation, remain.  

Providers are still failing to run the appropriate credit checks before enabling consumers to buy items using their service. Given this, it is no surprise that the use of BNPL can lead to poor credit ratings and bad debt. This creates an environment where some users rack up heavy interest charges, cannot afford to repay their instalments  and so creates unsustainable losses 

A brighter future for credit 

Nevertheless, the future of credit is bright. The need for credit is not new and BNPL is simply the latest flavour. Next-generation instalment programme providers will put control at the core of their offerings for both merchants and consumers. Consumers will be able to spend with peace of mind, knowing they can pay in flexible instalments they can afford. And merchants will be able to own the instalment experience themselves, strengthening their customer relationships rather than getting cut out of them. Hefty fees will become a thing of the past and spending insights will be channelled into enhancing the customer experience, not siloed for use later by an emerging competitor. 

The not-so-distant future will see merchants take centre stage in the payment and lending processes. To do so, they need an instalment programme partner who will help them grow their customer relationships. Brands, not BNPL providers, will become the trusted ‘pay later’ providers their customers can turn to throughout their entire journey.  

The market is maturing and with regulation looming over the industry, real change is coming. BNPL providers will soon need to adjust their business models to fit into this new instalment credit landscape. However, the simple truth is, this isn’t happening fast enough. And if BNPL doesn’t evolve into what merchants need, we may soon see the same merchants finding a way to do it themselves.