Finding the Upside of an Economic Downturn: How Some BNPL Players Are Leveraging Digital Identity to Win the Recession

Chad Miller
January 17, 2023

Although it remains an open question whether the US is barreling toward a recession or already in the midst of one, there’s no doubt that the American public is feeling the pain of an economic slowdown. With the cost of living far outpacing increases in wages, countless Americans are wondering how they are going to pay their bills this month. Millions of Americans have found the answer to this very question in the form of “Buy Now, Pay Later” (BNPL). While some critics express concerns over this new financing option, it has become a lifeline for many consumers and may just be the key to jumpstarting economic recovery.

So what is BNPL?

BNPL allows consumers to make purchases and pay for them at a later date, often with no upfront costs or interest charges. Think of it as a modern-day installment plan. BNPL helps consumers to justify an impulse purchase like buying a new television for the family or to afford a big unexpected expense such as dental work. In addition to stimulating the economy overall, BNPL also helps increase critical access to credit for marginalized consumers who don’t qualify for traditional forms of financing, such as credit cards or loans. By driving purchases and increasing access to credit, BNPL is instrumental in driving growth and jumpstarting the economy.

So which BNPL companies are going to find the upside in this economic downturn?

The companies that will benefit the most from the growing popularity of BNPL options will be those focusing on frictionless onboarding and fraud reduction. Frictionless onboarding refers to signing up for and using a BNPL service with minimal effort or obstacles, while fraud reduction relates to measures taken to prevent unauthorized use. By prioritizing these two areas, BNPL companies can increase the adoption and usage of their service, create a positive customer experience, and protect their business from fraudulent activity. These efforts can help these companies stand out in the crowded BNPL space and gain a competitive advantage.

One factor that can contribute to high friction and increased abandonment rates during onboarding for BNPL services is the use of multiple screens or the requirement of hundreds of keystrokes. This makes signing up for and using the BNPL service more time-consuming and inconvenient for consumers, leading them to abandon the process. Additionally, the need to input a large amount of information or navigate multiple screens creates frustration for users,  causing them to abandon the process. To address this issue, BNPL companies must streamline their onboarding process to minimize the number of screens and keystrokes required. This could involve consolidating information onto a single screen, using pre-filled fields to reduce the amount of data entry required, and providing clear and concise instructions on how to use the service. By reducing the number of screens and keystrokes required, BNPL companies can improve customer experience and decrease abandonment rates during onboarding.

The winners in the BNPL space are aware of the dangers of fraud and make reasonable efforts to prevent it. ID fraud, including synthetic ID fraud, contributes to significant losses for BNPL services. ID fraud refers to using stolen or fraudulent identification documents, such as driver's licenses or passports, to gain access to financial services or make purchases. Synthetic ID fraud involves the creation of a new identity using a combination of real and fake information, which can be more challenging to detect than traditional ID fraud. Both types of ID fraud can result in the unauthorized use of BNPL services, leading to financial losses for the company. These losses can occur in many ways, such as chargebacks for fraudulent purchases, losses from fraud prevention efforts, and damage to the company's reputation. To address this issue, BNPL companies need to invest in fraud prevention measures, such as verifying the identity of users and monitoring for suspicious activity. By preventing ID fraud, BNPL companies can protect their business and reduce the financial impact of this type of fraudulent activity.

"Buy now, pay later" (BNPL) options will be a critical factor in economic recovery in 2023. To gain market share during this critical period, BNPL companies must leverage frictionless onboarding to boost their revenue and harness fraud reduction strategies to protect their reputation. By leveraging phone-centric digital identity, BNPL companies can do well by doing good, helping millions of Americans weather an economic storm while making historic profits. 

For more info about how BNPL companies can reduce onboarding friction and fraud with advanced digital identity solutions, check out Prove’s contact us page.

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