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Why Buy Now Pay Later providers need to prioritize customer financial wellness

Buy Now Pay Later providers

Buy now pay later customers expect a positive experience at all stages – including when they fall behind on their bills. Prioritizing your customers’ financial wellness means understanding when you are putting your customers at risk and tailoring each interaction to help them through their unique situation. This leaves your customers empowered to take positive action, while feeling understood and valued.

Consumers are losing trust in their banks and don’t feel that their financial wellness is a priority. According to Accenture’s 2020 Banking Consumer Study, 29% of respondents said they trust their bank to look after their long-term financial well-being, compared to 43% in 2018. Declining trust in traditional banking creates an opportunity for BNPL providers to capture market share by keeping their customers’ financial wellness at the forefront of their engagement strategies.

As alternative lending services strive to capture market share, prioritizing your customers’ financial wellness is a necessity, not an option. Flexible access to financing offered by BNPL services fills a massive gap in the market, while also attracting inexperienced borrowers that are much more likely to fall behind on their bills.

You can help your customers stay caught up on their bills and prevent them from falling behind in the future, but this starts with understanding how you could be putting your customers at risk.

Are you putting your customers at risk?

There are plenty of reasons consumers seek alternative lending services such as faster customer service, flexible financing and lower-interest rates. BNPL services offer several benefits to consumers, but they also come with a higher level of risk:

  • Used in addition to traditional credit, not in lieu of
  • Lead to unnecessary purchases consumers can’t otherwise afford
  • Attract inexperienced borrowers who are at higher risk of falling behind

In Credit Karma’s recent survey, 44% of respondents had used BNPL services and 34% had fallen behind on their payments.

One factor that makes BNPL services riskier for customers is a concept called present bias. Present bias leads people to overvalue outcomes and rewards that they can receive now, as opposed to in the distant and uncertain future. Having higher present bias has also been shown to correlate with higher credit card debt. Failing to deal with present bias puts the long-term financial wellness of your most vulnerable customers at risk.

It is possible to build trust and empower your customers to borrow responsibly, all while improving cure rates and your customers’ financial wellness.

Encourage responsible borrowing and payment practices

While flexible services like BNPL can help your customers access the credit they need to make ends meet, they can also lead to risky borrowing practices. Alternative lenders attract inexperienced borrowers who are more likely to lose sight of what they owe because they lack the financial literacy required to properly manage debt.

According to C+R Research, 59% of BNPL customers say they have used these services to purchase an unnecessary item that they couldn’t otherwise afford. We also expect that this will escalate as people become more aware of these services, along with the continued state of economic recovery.

Your customers are not only spending beyond their means, but they experience less urgency when it comes to paying their bills due to 0% and record low interest rates. This may lead the customer’s situation to get further and further out of control.

While there are so many positive benefits associated with BNPL, it is important to acknowledge that BNPL customers are at higher risk of falling behind. Communicating with customers in a way that conveys the importance of staying caught up on bills and borrowing responsibly is essential for your customers’ financial wellness.

Empower your customers with clarity

Transparency is essential for customers who are behind on their bills. In a recent Symend survey, all respondents indicated a stronger preference for transparency than any other type of communication.

Here is the breakdown of which respondents prefer transparency, based on the status of their bills:

  • Behind on bills: 29%
  • Expect to fall behind soon: 32%
  • Not behind on bills: 44%

Consumers who are not behind on bills actually prefer it most, which may indicate that transparency is essential for proper debt management. It may also indicate that customers who are behind don’t want to think about their debt, which means their provider needs to take additional care to provide kind yet direct information.

BNPL services do not have the same regulations as traditional credit cards, which means that due dates, fees and balance owed may be unclear to the customer. Transparency is essential for managing cure rates and ensuring customers are satisfied with the service provided.

If your customers don’t have appropriate visibility into their account details, such as balance owing, they may begin to display avoidance behaviors or a loss of self-agency if they perceive the situation as being out of control. With strong transparency, customers will feel more equipped to prioritize their payments and make decisions, empowering them to make positive decisions that contribute to their financial wellness.

Meet your customers’ unique needs

BNPL services are becoming increasingly attractive to consumers because of the massive gap they are filling in the lending market. According to Salesforce data, the use of BNPL jumped 29% year over year during Cyber Week in 2021. While attracting consumers isn’t an issue for BNPL, retention and loyalty is still volatile.

Consumers are leaving traditional banks because their needs aren’t being met. Although the initial attractiveness of low interest rates and flexible financing will get customers in the door, tailoring your offerings to the unique needs of your customers is essential for retention.

Continuously providing a tailored service requires a deep understanding your customers’ unique needs and behavior. Historical actions, payment behavior, regional regulations and unique circumstances are just a few examples of what should be factored into what you offer your customers, how you communicate with them and when. Showing your customers that you understand their needs drives action because your communications and offerings are highly relevant. By making your customers’ financial wellness a top priority, you will create and keep customers for life.

Sources

  1. Accenture (2020), Banking Consumer Study: Making digital more human
  2. Credit Karma (2021), Pandemic stifles holiday shopping as many Americans report living paycheck to paycheck
  3. CNBC (2021), Some of your behavioral biases could be causing you more financial harm that you realize, study suggests
  4. C+R Research (2021), Buy now, pay later statistics and user habits
  5. Symend (2021), Post-COVID Report
  6. CNBC (2021), Buy now pay later boom shows no signs of slowing down this holiday season  

Adapt as customers change. Symend’s behavioral engagement platform gains a deep understanding of your customers so you can prioritize their financial wellness, while also improving cure rates.