The rise of buy-now-pay-later (BNPL) lending has outpaced consumer credit growth, and another challenge emerges for BNPL service providers to tackle. According to the Bank of England, net credit card borrowing had increased by 11.6 per cent in the 12 months before April 2022. Consumer credit, which includes personal loans and motor vehicle financing, has increased by 5.6 per cent over the past six months.
While BNPL remains a small part of the total outstanding credit in the UK, its increasing prevalence and usage have raised concerns about its potential impact on the country's financial services industry. According to Michael Davidson, the chief revenue officer of Freedom Finance, the rise in digital lending is driven by increasing trust in the sector and the growth of online shopping. This is why the industry is reacting to the growing popularity of these loans.
As the industry continues to move toward an embedded finance model, consumers must have the necessary credit options to meet their needs. This is where BNPL services are exposed to greater risk. With more users coming in, the challenge for collection becomes more pressing to keep BNPL providers afloat.
What's ahead for BNPL service providers?
Despite concerns raised by the Financial Conduct Authority (FCA) about the lack of regulation over the BNPL sector, industry experts have projected the number of loans issued by BNPL providers could increase by over 50 per cent in 2022.
In response to the FCA's concerns, the government launched a consultation in October 2021. It published its response on June 20, 2022. The government indicated that draft legislation on regulating the BNPL industry would be published by the end of the year. The second consultation on the rules for credit issued through BNPL would also be conducted by the end of 2023.
In addition, the government indicated that it would disappropriate certain provisions of the 1974 Credit Act to allow certain types of loans issued by BNPL providers to be regulated. It also plans to introduce anti-avoidance measures. One of these could prevent companies from using an exemption in Article 60F(3) of the regulations for certain types of credit.
Despite the various steps the government has taken to encourage traditional lenders to adapt, one of the most important factors BNPL providers should consider is following the lead of established players. Not only are they capable of acquiring new customers, but they are also very adept at recovering money. This is because the credit card industry has a huge advantage over traditional financial institutions due to the amount of data it has collected over the years. Not everyone can afford or is willing to repay their debts. This is why credit providers must be able to ensure that they are doing a good job in recovering money owed to their customers. As competition in the industry continues to increase, it is also essential that companies strike the right balance between customer satisfaction and revenue.
One of the most important factors a collection agency must consider when it comes to improving its inbound call strategy is the use of technology. This will allow them to ensure that their customers receive the best possible service. Another important factor is a prompt response time. Lastly, before a company can start to implement an omnichannel outreach strategy, it must have the necessary consent. This can be done by having an opt-in consent form available on its website or by making it easy for customers to opt out of certain channels.
Amid increasing scrutiny of the credit industry, it is more important than ever for BNPL providers to ensure that their customers are treated with the utmost respect.
