BNPL solutions: transforming risks into strengths

With 80% of B2B transactions predicted to be digital by 2025 [1], one thing is clear: e-commerce is the way forward.

Alongside this growth, we’re seeing increased demand for fast, secure and flexible payment options – B2B traders must be savvy. Providing an integrated tech offering, such as Buy Now, Pay Later (BNPL), could be the key to business continuity and development.

However, as with any new tool or process, introducing a BNPL option for buyers comes with risks. Here is how the providers themselves, alongside insurance carriers, are addressing these.

The verdict is in: tech helps companies grow their business. And even in the face of an uncertain economic environment or potential risk, BNPL solutions offer benefits.

Firstly, traders (known as merchants in the United States) don’t need to worry about the credit risks of a transaction. BNPL financing is secured and, often, backed by insurance companies. In most cases, it’s the BNPL provider that shoulders the risk of buyer default. Not, typically, the merchant.

Secondly, the solutions are especially useful for sellers seeking to engage their “longtail” customers. That is, the high number of buyers that represent a low total percentage of revenue. By automating their credit decisions, traders can turn those lower-value transactions into a higher-producing revenue stream.

Finally, as a lending stream, BNPL will remain attractive to small and medium-sized enterprises (SMEs). Underserved by traditional financial markets, these small business buyers are likely to rely on alternative solutions as the recession progresses. Even if the rising cost of debt causes providers to up their prices, suppliers would be wise to consider employing a BNPL solution to capture this market. 

So, the funny thing is, while SMEs are the most likely to benefit from BNPL, they are also the riskiest for users. And not just economically. With less data available than larger corps, the information gap can present another risk for suppliers: identity fraud.

Basic checks built into BNPL solutions go a long way to mitigating risk, such as requiring small businesses to link their banking account. That’s fraud check 101 – ensure the bank account matches the business name.  

The holy grail of fraud prevention, though, is onboarding. However, while a difficult onboarding journey – perhaps requiring several forms of matching identification before placing an order – can detect illegitimate buyers, it can also lose you genuine customers.

Creating a balanced solution is the name of the game in anti-fraud right now. Insurers, such as Allianz Trade’s dedicated e-commerce department, are working closely with BNPL providers to develop robust anti-fraud measures and a secure, but accessible, onboarding journey.

In today’s digital landscape, cybersecurity is essential to companies of every size and in every sector. The ramifications of a weak link can be serious, such as phishing scams resulting in the theft of valuable goods. Even if communications are secure, however, another major risk to consider is data storage – and protection.

Digital transactions often require the storage of large amounts of financial and personal information, including sensitive and identifying data. But for BNPL providers, data security is a guiding principle. Many of these companies are data-first and must adhere to strict data privacy guidelines. Their founders often have backgrounds in the technology sector and know how to build data protection into operations from the start. And critically, as API-based products, they don’t actually need to store any data in order to be able to access it. This expertise in data security, together with the fact that the merchant is one step removed from data storage, protects businesses that implement BNPL solutions from cyber threats.

Exploring the potential risks of BNPL solutions reveals their inherent strengths – from improved data security to balanced anti-fraud measures – and they could even be used to bolster business. For small businesses, BNPL is an accessible credit stream. Meanwhile, it enables merchants to grow their presence in that SME market. No single customer will make or break business, but with thousands now buying more well, the compound effect is incredible.

[1] https://tearsheet.co/payments/10-trends-that-will-shape-the-payments-industry-in-2023/