Virgin Money recently confirmed plans to enter Britain’s buy now, pay later (BNPL) market.
The banking player is the latest player to start offering BNPL products, which generally can help people to spread the cost of purchases without adding to their overall cost.
Earlier this year, another bank, NatWest, said that it planned to enter the BNPL market, enabling customers to split their purchases.
There have been concerns, however, that it can be relatively easy for people to build up large amounts of debt, which they cannot always easily repay.
More than two in five, recent, buy now pay later customers ended up borrowing money to make their repayments, according to recent research from Citizens Advice.
Therefore, the UK Government has said it plans to change the law to bring some forms of unregulated BNPL products into Financial Conduct Authority regulation.
Klarna previously announced that it would report the use of BNPL products to UK credit reference agencies from June, to protect customers and provide the industry with greater visibility of BNPL use, helping to improve affordability assessments.
To discuss this rapidly evolving sector, City A.M. sat down with Liam Chennells, CEO at Detected, a Shoreditch-based fintech born during the pandemic which provides automated global business onboarding.
Chennells, who previously held a senior role at eBay UK, zooms in on the risks financial institutions face if they skip thorough onboarding credit checks and broader checks.
He also discusses with this paper what regulation is coming down the line and how it will impact both SMEs and financial institutions.
Why are more and more financial service firms super keen to dive into the B2B BNPL?
Business-to-business payments often involve manual intervention and slow processing times. B2B BNPL offers a way for financial service firms to modernise the payments process, reducing friction, and for the firms that get this right, win market share and customers. For technology to be widely adopted in any scenario it must provide convenience or control – this has the potential to provide both, meaning it has a high likelihood of adoption.
What does B2B BNPL offer small and medium sized businesses?
If you are a small – medium enterprise, the likelihood is that obtaining credit is difficult, you have no power to negotiate payment terms, and credit cards may not have limits that allow the space to optimise cash flow that you need.
“Cash flow is a critical component of any business.”
Liam Chennells
Without access to some of the tools available to bigger businesses, being able to spread payments across a number of instalments is an excellent opportunity to remain competitive.
How can financial services firms ensure the KYB and business onboarding process is as efficient as possible?
It is absolutely essential that financial service firms set efficiency objectives that have metrics in two distinct areas: customer experience and their own risk obligations.
In these projects, I have never seen a compliance team give any meaningful weighting to the customer experience of business onboarding.
“All effort is directed towards avoiding risk.”
Liam Chennells
This is because the performance of a compliance team is not measured on metrics such as reduction of business customer churn in each stage of the onboarding process, but rather on statistics such as the quality of data collected to make risk decisions.
Blending improved customer experience with adhering to risk obligations has been very difficult historically, but in recent years there have been huge strides in technology that can support.
However, it doesn’t matter what software is available if the financial services leadership teams don’t take a fresh approach to setting objectives for these projects. The customer has to be at the heart of everything they do.
What risks do financial institutions face if they skip thorough onboarding credit checks and broader KYB checks?
The risks today and the risks tomorrow are very different. Whether it is legislation such as AML6 and PSD2, or more broadly speaking the approach required to mitigate the risks associated with emerging mainstream topics such as cryptocurrency – the key is understanding that those risks change daily.
Outside of the major depressions, financial institutions are facing the most challenging times in their history. Technology is moving at a pace we have never seen before, which means that the sophistication of the threats posed by those aiming to cause harm or commit fraud are the most difficult to defend against.
“The quality of fraudulent documentation and the complexity of business ownership structures are just two elements of the heightened risks that are catalysed by technology.”
Liam Chennells
This means that spotting ‘bad actors’ during onboarding and KYB is harder than ever before.
Criminals don’t exist unless they are a step ahead. The key is investing in infrastructure to allow adaptability rather than integrating to specific signals businesses that have been built to fight today’s fight.
BNPL has been under fire for pulling consumers into irresponsible decisions, what are your thoughts on this?
Some of us will do the right thing, some of us will do the wrong thing, and what is right for one person is wrong for another. Giving consumers flexibility on how they pay for products or services has been around for a long time – those that don’t use them with caution or good planning will unfortunately learn the hard way. In this way,
“BNPL is no different to credit cards.”
Liam Chennells
I do think that more could be done to make the negative impacts of the unhappy path more clear, especially with the prominence of consumer based BNPL in brands such as fast fashion organisations which target a young demographic.
How can automation and technology solve issues related to current KYB and onboarding processes?
The biggest challenges in the space are legacy technology and point-to-point integrations with data providers in combination with the speed of adaptability required to adhere to changes in legislation. This means that there is a rarely a single view of all of the up-to-date attributes of a business easily accessible. The operational overhead and compliance risk of this is huge, and technology and automation are the answer.
Anything else you would like to share with our readers?
Of course it is important to look at onboarding and KYB from a risk perspective, but do not neglect customer experience. While every business believes they are unique, technology has empowered every buyer to be more empowered than ever before. The result? Finding competitive advantage in areas you hadn’t previously considered is no longer an option, it is essential. Taking advantage of technology like Detected is an example of one such opportunity.
