Buy now, pay later: Delivering top-tier customer experience
The rising popularity of buy now, pay later (BNPL) is a dream come true for shoppers who want to break up the cost of a purchase and pay it off over a period of weeks or months.
Fintechs offering BNPL services may be encouraged by the big-picture landscape of the market, but they must not forget to zoom in on the customer experience (CX). When it comes to BNPL, there are CX best practices to consider.
What is buy now, pay later?
Thanks in part to a boost in eCommerce during the pandemic, buy now, pay later is growing in prominence as a convenient, short-term financing option that often comes with little to no interest. Essentially, it’s an updated take on instalment loans, or layaway — except that the customer gets to take home the product upon first payment.
It’s becoming so popular that 43% of Americans have used a BNPL service in the last year, up from 31% a year earlier, according to a survey by Lending Tree. And, a report by Precedence Research marked 2021’s entire global BNPL market at a whopping $125.09 billion.
This impressive growth is being powered by retailers offering BNPL arrangements through fintech providers. For instance, Target offers consumers the option with Sezzle, a Minnesota-based fintech. Etsy relies on Klarna, and Casper and Peloton use Affirm so that consumers can pay for their mattresses and exercise equipment over time. At the height of 2021’s holiday shopping season, PayPal recorded one million first-time BNPL users in the single month of November. It was the first time the company hit that record. “It’s booming right now,” PayPal CEO Dan Schulman told Reuters.
BNPL: Pain points and challenges
Though BNPL services are addressing a need in the market, there is still a trust gap to bridge for fintechs — especially among consumers accustomed to banking with ever-present, traditional financial institutions. And it doesn’t take much for the trust gap to widen in the face of fraud and other security threats.
But that’s not the whole story.
Clarity, or a lack thereof, has long been a sore spot for consumers when it comes to the financial services industry. This compounds issues related to low rates of financial literacy: According to a 2021 report by the Milken Institute, only 57% of U.S. adults are considered financially literate.
Additionally, wider economic downturns, especially in tech, and the anticipation of more regulation has given many pause for thought.
So how can those offering BNPL services rise to the challenge?
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CX best practices for BNPL
Despite the challenges of BNPL, the payment method resonates because it has numerous benefits. With a few simple clicks, consumers can purchase that expensive product they’ve been eyeing for months, and receive it right away without having to pay the whole cost up front.
Plus, most BNPL companies only require a soft credit check, so consumers’ credit score is usually unaffected by accessing this kind of payment plan — unless, of course, they’re late on payments.
The value of BNPL to consumers is underlined by the overall customer experience, highlighting just how important it is for fintechs to follow a series of CX best practices, including:
Transparency. Take ownership of the education process, explaining clearly how your BNPL services work, including all related terms and fees. If there is an interest rate, say so. And when it comes to returns, make sure users know how the process works. If shoppers can’t cancel the BNPL arrangement until the return has been processed, that is important information that needs to be visible for consumers to see before they click “buy.” To make all of this critical information accessible, build self-service resources for consumers to improve their familiarity with your product and answer common questions.
Security. Data breaches are on the rise across industries. Research from TransUnion, for example, shows that online fraud attempt rates in the financial services industry jumped 149% between the fourth quarter of 2020 and first quarter of 2021.
Customer expectations for data security and privacy are also evolving. Greater BNPL adoption depends on building trust and resilient systems designed to protect customers. Implementing Know Your Customer (KYC) protocols and identity verification features such as two-factor authentication can help keep consumers’ data safe.
Responsive customer care. The BNPL space is competitive. Companies must provide a great customer experience to keep users happy, or risk losing out to a competitor.
One way is to serve customers on the channel of their choice. Users of BNPL tend to be young, tech-savvy individuals: Research from The Strawhecker Group found that the typical BNPL user falls in the range of 18 and 44 years old. This means that customer satisfaction is driven by an omnichannel presence with a consistent experience across mobile, desktop, phone and even chatbots. Klarna, for instance, has a browser extension option built in that lets shoppers make online purchases on their desktop, even if the eCommerce brand is not an official partner with Klarna.
With any new solution, questions follow naturally. Such is the case with BNPL, and though there are matters to work through, the popularity suggests BNPL is here to stay.