No products in the cart.
- Latest
- Trending
ADVERTISEMENT
Despite the fact that 83% of consumers have a high degree of trust, retail finance, 100% of those interviewed felt uncomfortable providing personal information. Customers want peace of mind and need to trust your organization. This is achieved through transparency. What’s the best way to implement this? Todd LathamCEO Davidfintechs that allow people to apply for loans online via email or mobile phone, believe it is through Ethical Post-Purchase Payments (BNPL).
Latham said he has over 15 years of experience in fintech, having previously worked at Currencycloud and American Express. Fintech Times Why Ethical BNPL Lending Is Essential Amid Cost Of Living Crisis:
The BNPL market is growing exponentially. Consumer spending is now over 132 billion and by 2030 he is expected to reach 368 billion. This growth is unprecedented and completely uncontrolled by the government.
it is changing. Consumer protection is coming in the form of new regulations that will bring more stability to lenders and retailers. But until that day arrives, lenders and merchants must take the lead. They must begin to balance taking advantage of market opportunities and providing credit in an ethical manner.
First, it is important to understand why it is important for companies to act and be seen as conscientious and ethical.
There are multiple studies of youth shopping behavior, giving a sense that modern consumers want the brands they buy and the products they buy to be sustainable and ethical. 1 Nielsen For example, the report found that 73% of millennials would pay more for sustainable products.
This increasingly common spending behavior can easily be applied to financial instruments as well. In short, lenders and merchants who invest in BNPL are not exempt from the ever-increasing moral standards of their clients. To survive in this rapidly changing market, both parties must adapt faster than the pace of regulation.
What does this look like in practice? First and foremost, it means not lending to consumers who cannot repay their loans. I don’t think lenders and merchants contribute to people’s financial hardship. If so, they will build a negative reputation among the very group of people they want to appeal to.
“Reputation is king” is a statement that has been true for a long time. In the age of social media and online shopping, nothing could be more important.
The original BNPL model was designed to allow consumers with a steady income to purchase expensive items without the need for savings. As such, it was offered almost exclusively for expensive items such as furniture, automobiles, tools and equipment.
But modern BNPL providers are competing for the bottom. So far, the minimum transaction limit has been lowered, and now even low value items can be purchased “on the tick”.
This is seen as empowering retailers in high turnover categories, especially fast fashion. Often unbeknownst to them, these are listed on their credit reports and fund the cost of seemingly insignificant purchases.
Many of those customers are in arrears. Many more had to borrow elsewhere to pay off their loans. My credit file got corrupted in the process.
So where do we draw the line? I know there are some products and services that ethically cannot be purchased through BNPL, but what are they?
This is for the individual lender to decide, but at the very least it is recommended that the repayment term of the loan does not exceed the life of the product. That should answer the question of whether it’s right to lend against everyday necessities like fuel and groceries.
You can then ask questions about sectors such as high street fashion retail. With the fashion window changing faster than ever and people on average go shopping for clothes every one to three months, fashion-conscious shoppers should get into the habit of shopping at his BNPL. If so, you may end up piling up multiple loans.
Ultimately, lenders strike a balance between what is good for merchant customers (more profits, more baskets, more repeat customers) and end-user consumers (financial security) is needed. Both retailer and consumer sentiment and referrals are critical to a lender’s future success. This is especially true when offering products beyond retail finance. Therefore, it is imperative that we act on both.
Lenders should therefore continue to promote BNPL on behalf of retailers, but only if it is morally justifiable to do so.
When it comes to merchants, the main problem they face when working with BNPL platform providers is that together they have started to offer too smooth a journey. This often leads consumers to take out loans without realizing the potential impact.
From the merchant’s perspective, the transaction is complete on their part once payment has been made by the lender and the goods have been delivered to the consumer. But consumers don’t feel that way. If they run into financial trouble, it may be the merchant, not the lender, who is to blame. This carries the risk of damaging the merchant’s brand.
Merchants must take great care to ensure that consumers have the information they need to make an informed decision. In particular, you should be aware that BNPL is a formal loan agreement that can affect your credit score.
Communications is one of the avenues government regulations are looking to crack down on in 2023. But retailers can get a head start now. The merchant is encouraged to create content to help explain how her BNPL works for the benefit of her customers. This means that both merchants and lenders will also soon be announcing the roles they will play in the transaction, who will be responsible for what, and how each will benefit from her BNPL.
It’s not just good business practice, it’s a moral imperative.
The BNPL market is at a critical crossroads. It’s time for retailers and merchants to start updating their policies and procedures to reflect their ethical responsibilities.
Consumers should not be encouraged to spend more than they can afford. As regulations are introduced and consumers avoid these unethical organizations, brands that encourage such behavior will quickly be left by the wayside.
Remember that the BNPL market may represent a huge opportunity right now, but it is projected to get even bigger. Staying on the right track and providing positive friction to consumers will ensure your business grows with your industry.
That being said, we encourage everyone involved, including lenders, merchants, and platform providers, to act in line with the new moral standard of buy now, pay later.
