5 Factors to Consider When Running An In-house BNPL Program
Thanks to payment giants like Klarna, Buy Now, Pay Later (BNPL) has become one of the most important payment methods in the business-to-consumer (B2C) sphere. And business buyers are no exception, as BNPL or Payment by invoice is the most preferred option to pay for business purchases. As a result, merchants are exploring what it takes to offer this popular payment method for business-to-business (B2B) payments. Often they are torn to decide whether it is best to run an in-house BNPL program or outsource to a specialized provider as they are unsure about the most relevant factors. And so, this article will cover some of the most crucial elements an in-house BNPL program needs to run.
Running a Buy Now, Pay Later program successfully involves multiple factors. Therefore, we have included some of the most relevant ones below:
Building Multiple Teams
One of the most integral parts of an in-house BNPL program is the people you have on board. Setting up and maintaining BNPL requires many people with different skills and experience. You need developers, data analysts, risk analysts, compliance managers, designers, and data experts, to name a few. A fully operational department working on BNPL can be like creating a new business within your company. And it's vital to have enough people for continuous development to remain competitive against other merchants' BNPL programs.
Minimizing Risk
As with any lending, a BNPL program has inherent risks. Therefore risk management is critical to protect your business from bad debt, such as default payments and fraud. You need to be able to identify legitimate business customers and confirm they have the authority to purchase for a company. Business customers also need continuous risk assessments every 60 days to ensure creditworthiness and avoid future payment defaults. Additionally, the current macroeconomic situation has put pressure on many businesses making this even more essential.
Negotiating Contracts
Running a BNPL program requires contracts with multiple external providers: To correctly identify and score business customers, you need access to various external databases such as credit bureau providers. And late payments require a dunning and collections service. To mitigate fraud losses, you will also need insurance. Additionally, pre-financing and refinancing partners are essential to optimize cash flow. And getting the best deals with both partners to improve financial performance can be challenging for an in-house program.
Developing Time
One factor that can slip under the radar is time. For instance, incorporating data from credit bureaus to feed an AI-supported scoring model takes a while. Time is necessary to achieve high acceptance rates that accurately assess creditworthiness for a variety of different business types. Each identification also improves the scoring algorithm, so experience can’t be discounted as a factor either. The number of customers eligible to use BNPL will be affected until enough time has passed to allow accurate modeling and risk assessment.
Meeting Customers’ Needs
For a BNPL program to be successful and support business growth, at least 80% of customers must be accepted from a range of business types — including public institutions, freelancers, and guest customers. Moreover, payment terms need to be as long as 90 days with high credit limits of up to €100,000 to support longer, more expensive B2B orders. Business customers also need real-time scoring to get a consumer-like experience and to avoid manual processes still typical in B2B BNPL. Order management tools such as customer portals are also competitive features to offer. Meeting the needs of different business buyer types requires flexibility and is a challenge in-house Buy Now, Pay Later programs struggle to overcome.
Many other factors are relevant for running an in-house BNPL program successfully beyond the 5 mentioned here. Some other elements involved are cost, data management, and technical scalability. While for some merchants, it can, of course, be possible to run an in-house BNPL program, there can be limitations—particularly if this is not the core product. Therefore, it may be necessary to outsource to a provider. For additional information on the other factors, how BNPL ties into the greater B2B e-commerce sphere, and the advantages of outsourcing to a specialized provider—you can read our full whitepaper.