Cautionary tale—BNPL disrupts with faster, smarter, more personalized payment solutions
By Mallory Salerno, Vice-President, Business Development, Maru/Matchbox | February 7, 2022
The seamless experience of BNPL solutions has contributed to their exploding popularity.
The global market continues to put extreme pressure on financial institutions to develop faster, smarter, more personalized payment solutions. However, traditional financial institutions and lenders continue to fall short by failing to provide a frictionless customer experience. In a market already in flux, neobanks and financial technology firms (fintechs) are maximizing this missed opportunity by providing customers with deeply satisfying experiences from start to finish. The recent success of buy now pay later (BNPL) solutions is a cautionary tale of “right time, right place, right balance of customer experience (CX) and services.” What’s most important about the success of BNPL solutions is the lesson that can be learned about the value of providing emotion-based (i.e., System 1) customer experiences, over service-led (i.e., System 2) solutions.
Right time, right place
There is no doubt that the success of BNPL solutions is due in part to economic instability. As employment interruptions, income insecurity, and inflation rose in 2021, BNPL adoption increased exponentially. In 2021, Black Friday and Cyber Monday saw skyrocketing purchases in North America with the assistance of BNPL. BBC News reported in December that more than 17M U.K. residents had used the payment option. At Maru, we use our unique software platform to measure and analyze how consumers feel, behave, and think to help clients better understand their customers and deliver better outcomes. We conducted a poll the same month and found 62% of U.K. BNPL users have more than one agreement. Online service providers such as Afterpay/Clearpay, Klarna, and PayPal reported an acceleration in sign-up in 2021, with significant growth forecasted for 2022 in their markets (Europe, North America, South America, Australia, and New Zealand).
In South America, BNPLs experience even greater success filling a clear gap in the market. As early as 2012, fintechs provided a viable alternative to traditional financial institutions for purchases ranging from home appliances to travel packages. EBANX, a Brazilian fintech, found that 60% of online purchases were paid through installments. The desire to leverage BNPL solutions helps offset significant inflation as high as 50% in Argentina, low living wages, and a general distrust of banks. The distrust stems from the 2001 Corralito policies in Argentina restricting people’s ability to withdraw cash from their accounts.
Deeply satisfying experience
The success of BNPL solutions is not wholly situational. BNPL providers create a digital payment ecosystem that integrates secure data aggregation, authentication management, and an ever-expanding closed loop. The loop continues to grow with retailers increasing volume of sales and average size of sale, without assuming risk. Equifax recently estimated that shoppers were likely to spend 51% more on online clothing with an installment option than paying outright. In 2020, PayPal found 28% of U.S. shoppers were more likely to shop at a merchant again if it offered a BNPL option, and 32% would make a purchase they would’ve otherwise postponed.
BNPL’s value proposition, including low or no interest on purchases, flexible repayment options, and no impact on credit score may drive consideration. However, it is the seamless customer experience that keeps customers engaged long-term, shifting transactions from traditional credit card providers to BNPL ecosystems. Almost all American BNPL users polled by Maru in January said it was not hard to use (97%). The aggregation of purchase behavior and implementation of contextualized offers help further personalize customers’ experiences within BNPL platforms. For customers comparing an experience between a traditional financial institution and a BNPL solution, it becomes difficult to reconcile why one falls short of their expectations.
Futureproofing with emotion-based CX
Customers are judging all financial institutions and lenders on their ability to deliver a seamless experience. If the chasm grows between expectation and experience, then loyalty will diminish just as rapidly. As fintechs look for new revenue streams, the arms race for a deeper customer connection will continue. The integration of emotion-based metrics to support the personalization of customer experience at a sample size of one, will be the next frontier.
Ready to jumpstart your CX program?
Maru/ works behind the scenes with financial institutions and fintechs to drive deeper customer connections at scale. We work collaboratively to futureproof our clients’ businesses by leveraging our Feel, Behave, and then Think philosophy in conjunction with our leading insights software platform. If you are interested in learning more about the benefits of our end-to-end CX solutions and innovative research approaches, please contact Maru today.
Mallory Salerno, VP of Business Development, Mallory.Salerno@marumatchbox.com