Buy Now Pay Later for dummies

BNPL, or buy now pay later is super hot right now, but the concept has been around for a while.

What is new this time around is that technology is now available to make every consumer retail companies a finance company.

Here are a few things you need to set up your own BNPL for your own company. If you are in consumer goods or services, you should consider this as an option to expands your customer base and make additional income at the same time.

• Technology: You need a good private-labeled lending operating system that can easily embed into your existing website and or app. There are tons of offerings out there that costs less than hiring your own developer and get it up and running fast. These companies will build your customer experience behind the “apply” button and the customer experience matches your overall corporate style. These are fully hosted cloud solutions that make your customer experience seamless.
• Experience: You don’t need to go with middleman lenders that take your customer and have your customer experience a completely out of body experience. Separate customer portal, separate servicing team contacting your customers and potentially cross-sell your customers with stuff that they don’t need and create an overall bad experience. Your customer came for the stationary bike but end up getting ACME lenders haggling them for payments.
• Compliance: To do this on your own is easy. All you need is to get a retail installment contract in the states you operate in. These contracts are easy to get. The contract essentially states that you are selling goods and services in exchange for payments that are chopped up for 12, 24, 36, 48 payments. Sometimes these payments are interest-free. The intent is to give consumers the product and services they need without paying for the entire cost all upfront. This is the essence of BNPL. Now you know what and how to do this on your own.
• Risk management: Most of the consumer retail companies that offer BNPL will essentially deliver the goods or services upfront and get their repayment back from the consumer in installments. They have to take on the risk of consumers not paying back. To asset creditworthiness, you need a robust credit risk underwriting and pricing model to price for risk. For the best-rated customers, you can let them walk away with the goods or services and wait for their payments to come back. For those that had a low credit rating, you might restrict how much they can borrow and how long their term might be (shorter the safer). Lastly, you can ask for a small down payment to hedge risk. Most of the lending operating system mentioned above come with risk models that get you up and running.
• Funding source: BNPL requires zero funding. You are essentially letting your customers have their product and get their services upfront and repay over time. However, if you want to get paid upfront and let someone else take the risk, then you need to work with a funding partner that will buy the right to collect your customer's repayment. Sometimes you need to sell your contracts below par. Meaning that if the good and services MSRP is $1,000, your funding partner might pay you $900 upfront and they will collect on the $1,000 plus interests and fees. This discounting factor is sometimes called the “merchant discount rate”.

I hope you got the basics to dive into the world of BNPL. If you want a complete experience for your customers, tho should seriously consider leasing the software, getting a few retail installment contracts, and own it all.

If you need more information, please contact me.

Wishing you the best.

Tim