In the United States alone, an estimated 29 million U.S. consumers have used buy now, pay later (BNPL) services and market analysts forecast the global market size to reach USD $20 billion by 2028. According to McKinsey, it is the only unsecured-lending asset class that experienced high-double-digit growth through the COVID-19 crisis. Looking to the future, BNPL providers that initially started in their home markets are now growing throughout the world, offering their services in multiple markets and marketing themselves as an alternative to credit cards.

Three groups are behind the ongoing adoption of BNPL services:

• Consumers: The popularity of BNPL solutions is due to more than just pent up spending brought on by a global lockdown. Many shoppers see purchasing based on installment plans with fixed terms and transparent costs as a preferable alternative to traditional credit cards, and the offer is even more attractive when it is provided to consumers at the point-of-sale (POS).  It’s about the convenience!
• Merchants: Expanded access to consumer credit means a larger addressable market for merchants, along with increasing opportunities for revenue. BNPL data is also providing insights for merchants that can tell them which regions are most interested in their products and which customers are most likely to make a purchase. There are also some tax deduction benefits.
• Financial Institutions: To date, purpose-built fintechs have led the BNPL boom by building  automated, minimal underwriting solutions to maximize customer acquisition while effectively managing risk. Traditional banks still provide the vast majority of credit in the financial system because they offer long-term credit, loyalty rewards, and other benefits. Now, savvy executives at FIs are making plans to either partner with BNPL service providers or deploy their own products as they more fully understand consumer appetite for this product.

Data-Driven Growth

The rapid growth of BNPL services will require data to be available, ingested, and analyzed at breathtaking speed to support expansion into new geographic areas. It will also be used by financial institutions that develop expanded product offerings and move into similar payment and financing systems.

In order to achieve this, BNPL providers will need the technology infrastructure (primarily in the form of APIs) and external data to support credit, identity verification, fraud prevention, and anti-money-laundering compliance processes. There are vast troves of external data that can assist with these functions, but each source of data must be carefully assessed to determine whether it can add value.

Although each organization has unique needs, their processes can be enhanced with proprietary data showing previous purchases and buyer behavior. Their decisions can also be improved by upstream and aggregated data from numerous data sources such as credit bureaus, public record companies, and device signal companies. Other types of alternative data can provide credit signals and insights into buyer behavior.

Liminal, a boutique strategy advisory firm, has noted that the best BNPL providers will use alternative and traditional data sources to assess potential buyers. Companies that fail to implement effective screening processes may draw unwanted attention from regulators.

To harness the full potential of the available external data sources globally, risk managers, data scientists, and other decision-makers will be faced with thousands of hours of sourcing, testing, and deployment work. Demyst has more than a decade of experience helping organizations access and manage external data for their business needs.

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