Whether they’re selling Christmas lights or outdoor furniture, there’s a good reason why the master sales people at QVC and Home Shopping Network repeat one phrase over and over. The mantra? You guessed it: “For just three easy payments of…” The reason behind the repetition? It’s simple: focusing on monthly payments prevents sticker shock (the dismay felt by customers at the surprisingly high price of an item) from killing the deal. The hosts know that while their viewers might blanch at the idea of paying $45.31 for a 2-in-1 collapsible snow shovel and ice chipper, paying for it in just “three easy payments” of just $15.10 seem like a great deal. In recent years, ‘Buy Now, Pay Later’ (BNPL) as a mode of payment has been effective in driving sales not just for online businesses but also for brick-and-mortar stores. Even better, the product has been just as effective for millennials as it is for their older counterparts. It comes as no surprise then that the BNPL market is expected to grow to over a staggering $126 million in the United States in 2021. As a growing number of companies jump into the BNPL bandwagon, each must find unique ways to accelerate and fortify onboarding to beat out the competition and capture the most market share.
Apple made headlines this month when it teamed up with Goldman Sachs to introduce its own BNPL service that will compete with PayPal’s ‘Pay in 4,’ Klarna, and Afterpay. Although each service varies slightly, they all follow the same general business plan: offer customers a zero-interest line of credit that can be paid back in installments. As long as customers make their payments on time, they can pay for their purchase in smaller, more manageable chunks over a longer period. BNPL services generate the bulk of their revenue by charging merchants transaction fees (fixed or variable) or through interest income sharing arrangements with their financing partners. In exchange, merchants can offer POS (point-of-sale) financing options that prevent sticker shock and increase sales revenue. Proponents of BNPL would argue that this amounts to a win for both big and small businesses. After Levi’s partnered with Afterpay, for instance, it led to measurable business results, including an increase in average order values. After Relax The Back partnered with Klarna to offer installment payments, they enjoyed double-digit improvements in sale conversion, resulting in a revenue lift of over 150%. As retailers continue to partner with BNPL companies to offer customers installment payment options in hopes of increasing sales, onboarding new customers at the point-of-sale quickly to accelerate credit checks and complete purchases will be critical.
Historically, when a customer needed a line of credit or loan, they would apply for a credit card. Due to legacy, cumbersome onboarding practices, and stringent KYC (know your customer) requirements, banks, and credit card companies would take at least a few days, depending on the size of the loan, to run a credit check and sanction the loan. However, quick and frictionless onboarding is absolutely critical to the success of BNPL, be it by the cash register in a brick-and-mortar store or the checkout page of an e-commerce website. Every second at checkout matters because, as any retailer will tell you, keeping customers waiting to complete their purchase is a sure-fire way to lose business. In order to compete with traditional lending models, BNPL companies must complete identity verification, fraud checks, and onboarding as fast as possible.
Although BNPL companies are racing to onboard customers, they must also obtain and verify basic customer information—name, address, social security number, and contact information—in order to prevent fraud and perform a soft credit check before issuing a loan. In order to accelerate this information-collection process and perform foolproof identity verification, a growing number of BNPL companies are embracing phone-centric identity™ validation and authentication.
Because consumers are increasingly using cell phones to complete purchases both in-person and online, it makes sense that BNPL companies harness the power of phone-centric technology to reduce fraud.
Prove Pre-fill™ is a great way to harness the power of phone-centric identity to cut down on onboarding time, increase sign-ups, and prevent fraud. For example, rather than ask a customer what their name or date of birth is and then confirm the data from an authoritative source, Prove Pre-fill auto-fills the form by fetching the information from an authoritative source and simply asks the consumer to confirm it. It also reduces fraud because it prevents imposters from using stolen information that is not associated with their phone numbers. In addition, by cutting down on customer keystroke fatigue and bolstering security, Prove Pre-fill can help BNPL companies to prevent customers from dropping out of the application process, thereby vastly improving conversion rates. In the process of doing so, Prove Pre-fill also carries out Possession, Reputation, and Ownership™ checks to prevent identity-takeover-led fraudulent registrations.
While some financial experts warn that BNPL companies could encourage consumers to spend beyond their means—40% of US shoppers who used BNPL services last year missed more than one payment, with 72% seeing their credit score decline—others argue that BNPL programs help consumers avoid predatory payday loans (many of which charge a heinous 25% interest rate) and improve cash flow. Either way, ‘Buy Now, Pay Later’ companies are gaining popularity with consumers. Last year, about 44% of consumers said the option to use a BNPL service is somewhat or very important in determining how much they spend during the holidays. Moreover, as Apple, PayPal, Klarna, and others race to dominate the market, they are increasingly harnessing the power of digital verification technology to accelerate onboarding and reduce fraud.
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