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7 Must Needed Attributes for BNPL

BNPL is not the same as traditional lending.
It creates a rare win-win-win for Consumers, Merchants & Banks. 
Here are 7 key attributes that make BNPL work as it is meant to 👇��

All these parameters need to be in place, simultaneously

1. POS finance has existed for a long time. This usually involves a loan application which is then approved or declined, and the borrower goes on to pay interest over a pre-determined period of time.

BNPL means that if the dress cost me 1000, the consumer can pay for it in 3 instalments of INR 333 each over 3 months.


2. In BNPL is free for the consumer but the merchant pays a merchant discount rate (MDR)

Ex: if the dress we bought cost 1000, the merchant only gets something like 970 for selling it. The BNPL provider gets the remaining discount rate. (3% or this example)


3. BNPL results in higher sales conversion for the merchant as Spreading payments over several months lightens the burden on a consumer’s cash flows. 

The merchant is only willing to pay the MDR because they can sell more goods and services if they use BNPL.

A merchant would rather sell eight dresses and collect 970 per dress than selling five dresses and collecting 1000 per dress.


4. BNPL works best when the purchase is discretionary 


5. BNPL works best with good credit quality customers. The BNPL provider has many costs, If the merchant discount is 3%, the BNPL now has to pay :
- Cost of finance
- Operational costs 
- Credit losses

In the example above, If the credit losses go to 2% the BNPL provider suddenly starts losing money. Which increases the borrowing rate.


6. BNPL has a high conversion rate of at least 75-80 % of consumers are approved for the BNPL product.


7. BNPL is frictionless In order to avoid the merchant worrying about customer friction, the BNPL process itself has to be tech-driven, seamless and embedded. 
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When you deviate from what makes it unique, a cascading failure takes place and everything breaks down

When assembled correctly, these 7 pillars can support a win-win-win outcome where the merchant, the customer, and the BNPL provider

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Comments: (7)

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 15 June, 2022, 15:26Be the first to give this comment the thumbs up 0 likes

AFAIK, BNPL MDR tends to be higher, 4-6%.

Re. #3, 8 v. 5 dresses is 60% uplift. I've not come across any data suggesting that such a high uplift is feasible.   

OTOH, there's data to support an even higher uplift, but in another metric: Average Order Value (85% per Affirm).

Applied to your example, that would translate to, sales of 5 dresses @ 1800 instead of 5 dresses @ 1000.

Abhinav Paliwal
Abhinav Paliwal - PayNet Systems - India 16 June, 2022, 05:37Be the first to give this comment the thumbs up 0 likes

Different countries have different lending rates and hence will different MDRs.

I have taken 3% MDR for illustration purposes - This is not a case study.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 16 June, 2022, 09:34Be the first to give this comment the thumbs up 0 likes

MDR is not as sensitive to interest rates as the common man has been conned by banks into believing.

As somebody pointed out on Twitter, interest rates have crashed in the last 60 years but APRs have always been in the same 24-36% range and MDR, in the same 2-4% range, over the entire life of the credit card industry. 

Abhinav Paliwal
Abhinav Paliwal - PayNet Systems - India 16 June, 2022, 11:34Be the first to give this comment the thumbs up 0 likes

MDR never came down because of the payment network duopoly. Times have changed now. 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 16 June, 2022, 12:11Be the first to give this comment the thumbs up 0 likes

GoI stipulated ZeroMDR. Visa and MasterCard refused to comply. Did GoI ban V / MC? No, instead it restricted ZeroMDR only to RuPay cards.

Contrary to what the common man thought, this did not lead to a boost in RuPay. Instead, banks actually cut down RuPay issuance and boosted V / MC issuance.

What times have changed?

As the CEO of Visa recently pointed out, Visa has faced competing card networks and nationalistic measures all over the world since the 1970s but, 50 years later, it's still the #1 card network in the world.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 16 June, 2022, 12:491 like 1 like

Yep you read that right. Here's my source:

Finance Ministry move on merchant discount rates killing RuPay cards. Visa and Mastercard are gaining.

Per your linked article, "... 603.6 million RuPay cards have been issued by nearly 1,158 banks. But only 970,000 are credit cards."

<1M RuPay credit cards and >602M RuPay debit cards. ICYMI, your post is about BNPL, which is a credit product. How does the count of RuPay Debit Card matter in this context?

Just for reference, during the same period, Banks + Fintechs issued 20M Visa and MasterCard Credit Cards in India. 

Abhinav Paliwal

Abhinav Paliwal

CEO

PayNet Systems

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This post is from a series of posts in the group:

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