How Embedded Finance Can Shift Buy Now, Pay Later
Exploring new payment opportunities through embedded finance that don’t require customers to take on more debt.
In the past decade, buy now, pay later (BNPL) has grown into its own market. Buy now, pay later divides a customer's total purchase into a series of equal installments, with the first due at checkout to receive the item. As a type of installment loan, remaining payments are billed to customers' debit or credit cards until the purchase is paid in full. From a consumer perspective, BNPL allows payment installments to be used as a budgeting tool that doesn’t prohibit customers from completing more expensive purchases, whether they actually have the money to do so or not. If consumers should use this service depends on the plan, and their financial lifestyle, or situation.
Although some BNPL platforms advertise no interest or fees for the service, this is only partly true, as most BNPL platforms charge a late fee or start charging interest on late payments. This can have negative impacts on customers’ credit scores and long-term creditworthiness. The hidden risks of BNPL can cause unnecessary harm to customers’ financial wellness from overspending and unnecessary debt accumulation, including personal credit rating damage, which can affect customers’ ability to get a mortgage, secure a car loan, or even get a credit card in the future.
While some BNPL platforms are popular, not everyone is eager to participate. Millennials are hesitant to take on more debt, and not all consumers qualify for BNPL options. One of the primary financial risks of BNPL is that it encourages customers to spend more than they normally would (or can afford). Almost 70 percent of consumers who have used BNPL services admit to overspending when using them. If BNPL customers don’t budget these payments into their long-term finances, it can lead to a silent accumulation of debt.
Embedded finance offers a new consumer-friendly approach to BNPL, Save Now, Buy Later (SNBL). Through embedded finance, enterprises can introduce branded savings accounts or wish list accounts, in turn supporting their customer’s needs without having them fall victim to additional debt. Wish list, or Save Now, Buy Later, accounts give consumers the opportunity to plan purchases and incrementally deposit funds into the account. When brands offer savings accounts via an embedded finance partner, the entire experience, including the right mix of perks and incentives, are all customized by the brand. And, these accounts can earn yield on balances.
Here are a few examples of the incentives that enterprises can offer for virtual accounts:
Cashback for automated deposits into the SNBL account
Why it works: The faster customers fund the account, the sooner they’ll make the next big purchase.
Gamified finance, where the more customers buy in certain product categories, the more points or cashback earned
Why it works: Brands control and streamline promotional efforts and drive purchases in certain product categories.
Cashback deposited into the SNBL account for all in-store purchases
Why it works: Cashback on all purchases in-store can increase foot traffic in physical locations, and brand engagement across both digital and physical channels.
Cashback for daily purchases
Why it works: Enterprises can continuously incentivize and reward customers for engagement, loyalty, and spending.
Who should offer Save Now, Buy Later accounts?
The most appropriate enterprises have one or more of the following attributes:
- Large ticket items
- Projects or purchases that are infrequent (like cars, furniture, large appliances, and technology)
- Relatively frequent large purchases (like monthly groceries)
- Annual big purchases (travel, family vacations, cruises)
By offering Save Now, Buy Later, enterprises promote financial wellness, wealth building, and an aptitude towards saving appropriately. A smart use of embedded finance brings financial transformation to brands and their customers. Companies can offer a better alternative to BNPL spending, encouraging savings and financial accessibility in a way that benefits both the business and its consumers.
Learn more about virtual accounts.