Buy Now, Pay Later (BNPL) has exploded in recent years, with a bevy of specialized service providers establishing a significant presence in the e-commerce marketplace–to the tune of a projected $90 billion in volume this year for the US alone.
But as BNPL offerings have proliferated, so too have questions about the potential risk inherent in the prevailing model, which is based on non-bank providers offering short-term financing at the point of sale, with credit decisioning based on relatively limited customer data.
That approach, many argue, increases the risk - to both consumers and providers - of BNPL users taking on an inordinate amount of debt to fund impulsive purchases, then struggling to repay the loan and potentially defaulting.
A Bank-Centric BNPL Model
Galileo’s new BNPL solution significantly mitigates this risk by re-imagining the BNPL model with a bank-centric approach, leveraging more complete consumer financial data and enhanced loan term flexibility to ensure financing offers are a good fit for the customer and the provider.
The result is an easy way for banks and fintechs to get in on the BNPL boom, while safely enabling greater spending power for their customers.
In a recent interview with PYMNTS, Galileo Chief Product Officer David Feuer outlined the key differentiators that set the company’s BNPL solution apart from the pack.
Watch the full interview in the video below:
1. Better Data, Better Decisions
BNPL specialist providers typically rely upon consumer credit scores when deciding whether to approve or deny an application for a short-term loan to fund a purchase. Some only perform a “soft” check, while others don’t check credit at all.
In contrast, under Galileo’s model, underwriting decisions are made by a bank that has insight into and understands the customer’s financial history best, and can use that data to effectively assess consumers’ financial health and ability to repay.
“We said, ‘What if a bank could use the history of the customer with that bank in order to make different credit decisions?’” noted Feuer.
2. Fully Customizable Terms
With a fuller picture of consumer financial data in hand, banks and their fintech partners can leverage that information to craft financing terms that work for all involved parties by taking advantage of Galileo’s highly customizable BNPL financing framework.
Galileo’s solution offers alternatives to the ubiquitous model of breaking a BNPL loan into four repayments with one installment charged at the time of purchase. And the customizable aspects of Galileo's solution extend far beyond the number of repayment installments, noted Feuer.
“The payment terms, the repayment schedule, how many payments [there are], what is required upfront, how the credit box looks; we make it an environment where all of that is customizable, where the fintech or neobank offering the loan is able to have whatever parameters necessary to build out a customer experience that best meets their needs,” Feuer said. “That’s a little bit of a different approach than what anybody else in the market has been taking.”
Once financing is extended, Galileo is the loan servicing platform which includes overseeing the repayment schedule, loan disbursement to virtual cards, assessment of interest and fees, payment processing, charge off and optional credit reporting.
3. Up-Front Offers and Virtual Cards
Perhaps the most fundamental difference between Galileo’s BNPL solution and market standard offerings lies in which part of the customer journey the short-term financing offer is made.
Instead of presenting BNPL as a payment option during the e-commerce checkout process, Galileo’s model enables banks and fintechs to deliver a real-time, personalized offer via mobile application. If the consumer accepts the offer, a prefunded, single-use virtual card is provisioned to their mobile wallet and subsequently can be used to make purchases in-store or online at most retailers.
Removing the BNPL financing offer from a specific merchant’s e-commerce checkout flow gives the consumer more flexibility when deciding what to buy, and also reduces impulsive financial decision making, Feuer said.
“When their bank makes the offer, customers are able to take a step back separate from a specific purchase or a purchase flow that they're in and say, ‘Do I want to perhaps take this loan as opposed to another more expensive loan–for instance, from a credit card?” Feuer said. “That considered approach is really empowering, and enables customers to be more proactive about the decisions they make around lending and around cash flow.”
Why Banks Shouldn’t Wait on Buy Now, Pay Later Services
With high levels of consumer trust and troves of data on hand, banks are well-positioned to capitalize on the booming popularity of buy now, pay later services.
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