Now that we’ve covered all the basics of the BNPL industry and automation in our buy now pay later guide, Let’s dig deeper to enable you to make the right decisions for your business when implementing a pay later functionality operation.
What we’ll cover
- B2C vs B2B. A review and analysis of the key differences of BNPL operations for each business type.
- Avoiding the technological fad. Investigating the importance of offering a BNPL option for your consumers.
- Keep it in-house or bring on a partner. The challenges and benefits of keeping your BNPL operations in house or outsourcing to a BNPL partner.
- Set for success. Best practices for bringing your BNPL operations in-house and what you can expect.
But first, wanted to check if you (or your staff) would like this in-depth BNPL white paper with all you need to know to launch a digital lending operation.
The difference between B2C and B2B buy now pay later programs
B2C and B2B pay later processes, while similar in many fundamental aspects, differ drastically in credit scoring logic and automation needs.
- There are a lot more B2C pay later providers and they deal with a lot more standardized transactions and clients. What they’re selling rarely costs more than $1k. It’s a numbers game. You need to close deals on autopilot, without mistakes, and with an intuitive interface.
- B2B pay later providers work with fewer commercial clients but each deal brings more risk and more reward. The B2B pay later sale can be huge but evaluating risks of non-repayment when you’re dealing with a business entity is also much harder.
As you can see, the B2C segment needs a quick-to-deploy and easy-to-configure universal solution which will work in a variety of industries by default. B2B segment often requires additional features, custom integrations, and unique configuration to fit their business logic and specific customer profile.
In this article, we’re taking a closer look at the B2C pay later space, also known as consumer finance, point-of-sale finance, embedded lending, in-house lending, and many other aliases.
Why offering buy now pay later options is a must for a B2C business
There are millions of businesses that already do and soon will offer their own pay later options to their clients. Retail, healthcare, professional service providers, manufacturing, renovation, etc – anything a consumer may want to pay for in installments.
Most of these businesses went through an expedited digital transformation process in recent years which wasn’t easy. At the same time:
- Their client’s purchasing power got lower
- They were forced to increase prices because of inflation and their operational costs
- Their competition increased with global providers and expanded monopolies
Giving clients an affordable and accessible installment plan addresses these problems. With pay later options you can still charge a fair price for your product while making it affordable for the client.
According to data from Klarna, one of the biggest BNPL credit providers, implementing a pay later program leads to:
- 41% increase in average order value
- 35% increase in conversion
- 45% higher purchase frequency than the average shopper.
That’s already good. But it gets better when you do it in-house. This way you remain in control of the customer journey, control the pay later program terms, and keep lender’s recurrent fees, etc. But we’re getting ahead of ourselves.
It’s also important to mention that for most of these businesses, income is seasonal and stable cash flow is…challenging. Receiving payment installments predictably throughout the year helps you plan ahead and strategize.
Partnering with BNPL lender vs launching a consumer financing program in-house
Once you’ve decided to offer pay later options to your clients, you will need to choose:
- Are you going to delegate the program to a third-party lender like Affirm
- Or will you keep it in house, with an end-to-end platform like TurnKey Pay Later
In a nutshell, when offering pay later was hard, involving a middleman made sense. But now that it’s easy – it doesn’t.
But let’s look at this question a little closer. How did we end up here?
Short history of consumer financing and where it is going
At first, only large banks could afford proprietary digital lending technology developed and maintained by floors of their staff. Then lending tech became a little more accessible and FinTech BNPL startups were able to afford and maintain solutions for B2C business. Now, digital lending technology is easy-to-use and affordable enough for businesses to handle it themselves, without a third-party lender at all.
For a while, consumer-focused BNPL options were dominated by fintech startups like Klarna and Affirm. During the pandemic, their capitalization skyrocketed fueled by a unique market position. But now, not a month goes by without a major BNPL controversy indicating that one-size-fits-all approach to point-of-sale credit doesn’t work too well.
But the clients already expect to have a simple point-of-sale credit option. And with modern lending technology, there’s no reason why this credit should be provided by a third-party and not the business owner. It’s not to say that there is no place in the lending marketplace for traditional lenders, BNPL specialty lenders, and in-house pay later providers.
All it means is that lending technology becomes more affordable and accessible which makes the lending market more competitive, which historically leads to better service or product for the client at a fairer price.
Why business owners choose and then leave BNPL lenders
Many small to mid-size businesses start out in pay later with BNPL lenders because of the plug-and-play nature of the deal. But once the business starts to grow, they start to notice that not controlling the pay later process is costing them a lot in fees, in disappointed clients, and in lost sales.
Problems mentioned by business owners who partner with large BNPL lenders include:
- Rejecting financing of quality consumers for arbitrary reasons
- Offering unreasonable interest and repayment terms
- Providing no flexibility in repayments
- BNPL fees getting out of control as business starts to scale
- Lack of ownership of the consumer relationship
If you’re a product or service provider, partnering with specialty lenders to offer pay later is just sharing your business with someone else. It is natural to feel anxious about competing with large financial institutions. It’s their business, they have the expertise and the resources.
Cost-effectiveness of keeping BNPL in-house vs using a third-party lender
You may reasonably ask: “Doesn’t doing it in-house entail higher maintenance costs, staff expansion, acquiring lending expertise, etc.?
And that’s the right question to ask. Automating lending in-house is an added expense that needs to be worth it. And its monetary value grows drastically with scale. But so does the amount of money you lose when you delegate pay later to a third-party lender.
Here’s a simple exercise:
- The fees BNPL lenders collect from you in each installment are usually 2-6%.
- On a $100 purchase it’s $2-$6.
- On a hundred purchases it’s $100-$300.
- On a $5mil pay later loan portfolio (which is common among TurnKey Lender clients) 2-6% scales up to $100-$300k in fees annually. A similar Standard project with TurnKey Lender, start to finish, usually costs about $50k annually.
How do I automate my BNPL program the right way?
To compete with large-scale BNPL providers, you need to focus on the benefits you can provide and the risks you can alleviate.
ConsumerFinance.gov released a report that indicates key benefits and risks of BNPL for consumers:
- Financial benefits are things like no interest and sometimes no late fees
- Operational benefits are ease of access and simple repayment structure
- The potential consumer risks include discrete consumer harms, data harvesting, and borrower overextension
Modern digital lending technology provides you with enough flexibility and pre-configured functionality to stay agile and offer your clients a better deal and a better experience.
Automating and running a pay later program with a platform like TurnKey Pay Later is similar to introducing any other new SaaS platform to your staff. TurnKey Lender team will set up the solution, onboard your team, conduct all the necessary performance, security, and technical tests to make sure the platform works now and long term.
In your admin back office it will look like a modern SaaS tailored to your business. It does most of the work on complete autopilot and has all the data you may need located right where you need it in your workplace.
The system covers checkout, application, underwriting and decisioning, disbursement, servicing, collection, reporting, payments, communications, and more. Mid-size business owners who started offering B2C pay later this way either required minimal team expansion or made do with the employees they already had in-house.
Some business owners worry that they won’t measure up to the digital checkout and repayment experience BNPL lenders offer. But with the current lending technology it’s not a problem to maintain or even improve upon the industry standard. Most importantly, because you know your clients’ needs better , you will now have the tools to address them.
To outperform big BNPL players, you need an intuitive and easy to configure platform that will make it easy for a consumer to choose an exciting pay later option at checkout and then pay for the product in installments without thinking about it twice. This level of expected simplicity requires a high level of automation and instant analysis of large volumes of borrower’s personal, credit scoring, and payment data. Once the deal is closed, the client gets a dedicated client portal and the application can be tracked and managed inside the admin panel.
There’s a lot of polished technology making lending automation flexible and smooth, which we at TurnKey Lender are proud of doing.
Why TurnKey Pay Later for B2C financing
TurnKey Lender allows you to get on the same level of digital pay later experience as Affirm and PayPal provides but the platform is yours and tailored to you and your consumers. You are in control of the pay later program’s terms, new promos and campaigns, approvals, and rollovers.
On the one hand it, runs on autopilot, but should you need to tweak anything system-wide or for a specific borrower – you can, in an intuitive interface.
Effortlessly adjust details of your pay later program, run the system on autopilot or manually control who gets approved and on what terms. Once the system is in place and running, it’s highly automated enabling you to save on staff and paperwork.
With TurnKey Pay Later you get award-winning smooth interfaces where you can configure the granular details of the application process, credit terms, fees, schedules, credit decisioning, and collections.
To sum up, TurnKey Pay Later allows you to offer payment plans seamlessly, ensuring customer satisfaction, higher lifetime value and a streamlined digital customer experience.
Ready to talk details of your pay later program with TurnKey Lender team? Book an intro call today.