Today, customers can buy all they want and desire and pay using interest-free instalments without necessarily having a credit card.

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This new payment method has been introduced by fintech, becoming wildly popular. And, of course, we are referring to buy now, pay later (BNPL). While consumers have flocked to BNPL, the sector is also facing growing concerns that it enables ‘shopaholics’ and might not have consumers’ best interests in mind.

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Are these concerns based on what consumers are experiencing? Or is it a case of modern myth making?

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Let’s take a closer look at BNPL, common claims about this payment method, and debunk them.

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Myth 1: BNPL platforms are only for millennials

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For some BNPL companies, the majority of their customers are slightly older than millennials.

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In truth, many BNPL purchases are influenced by life events rather than age. Because BNPL platforms are building a broad set of merchants and verticals, consumers tend to gravitate towards different purchases at different stages of life. This includes everybody from students buying textbooks and bags to young couples buying furniture to middle-aged professionals paying for other big-ticket purchases.

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Check out the whitepaper to dive deeper into this: Discovering modern credit risk scoring in buy now, pay later.

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Myth 2: BNPL platforms don’t care about fraud detection

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They do, and they have to. For consumers, the word is out in the UK and US that as many as 4 in 10 BNPL users have fallen behind on payments at least once. And almost three-quarters of people with a late payment say they have seen their credit scores drop. In fact, this is one of the key concerns of regulators.

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Many BNPL players use advanced analytics and fraud detection solutions to manage the business's first payment default risk and fraud detection. Therefore, it is in their best interests to ensure they’re onboarding the right customers and stopping any folks trying to take an abusive approach to the platform.

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Let’s look at a BNPL case study in the UK. A BNPL player had the challenge of a low percentage of credit bureau hit for a large base of more than a million users and growing. The solution included deploying credoweb to collect privacy-consented and permissioned behavioural metadata on their online application page.

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In particular, credolab’s lightweight JavaScript was used to collect metadata on how applications were completed, including typing biometrics (speed, cadence, latency), gestures, and UI interactions. Then, using credolab’s proprietary scoring algorithm to process the metadata collected, the client uplifted the model's predictive power and reduced false positives and negatives by nearly 20%. How does this benefit the business? It significantly helped the company create a simultaneous reduction in detecting fraud early by stopping applicants that are highly likely not to repay, even for the first time.

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There is no doubt that BNPL players will always have to evolve and optimise to better understand consumers' spending situations. However, this does not mean they do not take early fraud detection into account from the start but rather try to improve it.

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Myth 3: BNPL platforms rely on late payments

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In the media, there is a lot of discussion about BNPL late fees, and regulators are also paying attention to the situation. But here’s the thing. BNPL platforms don't want people paying late. It costs them as much as it costs the consumer when people pay late.

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However, BNPL risks should also be considered. For example, some customers might be too reassured that the first payment is less and forget that there are still future instalments to pay. In addition, some people tend to forget that their balance still has to be paid off eventually because they can now easily afford something previously unattainable.

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Myth 4: BNPL platforms are wary of regulators

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Every industry has outliers that wait until regulators seek industry-wide changes before making proactive product changes, and BNPL is no different. However, most responsible BNPL platforms are eager to work hand-in-hand with regulators to ensure their business models can grow ethically. According to an S&P Global Market Intelligence 2022 article, with the current BNPL ambiguity, BNPL players and platforms need to make clear loan terms and fees for each offering to clarify the different interpretations of BNPL.

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They want to educate consumers about the risk of borrowing and instalment payments. And they want to set standards that protect consumers and merchants alike.

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Future of BNPL

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Myths aside, BNPL has transformed online and offline retail shopping in just a few years, with e-commerce booming and brick-and-mortar stores bouncing back to business again. For those who are still struggling to find their place in the economy, BNPL and other revolutions in the financial world create opportunities. Still, to mitigate the risks, proper risk and fraud prevention strategies should be employed to maintain the protection of both consumers and merchants.

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