5 Strategies ‘Buy Now, Pay Later’ Lenders Can Use to Improve Customer Experience and Regulatory Compliance

The buy now, pay later (BNPL) business is booming. Worth a few billion dollars in 2019, the U.S. BNPL lending market is estimated to have grown by 2,400%, reaching $77.3B by 2022. According to a 2022 Consumer Reports survey, 28% of Americans have used a BNPL service. Younger shoppers are the most likely to use BNPL (more than 61% of Gen Z have used it), but it appeals to consumers across generations.

BNPL is a form of credit that allows consumers to split transactions into smaller installments and repay over time. When it’s done right, BNPL lending improves the customer experience (CX) and increases loyalty and sales. To improve the BNPL CX, lenders should communicate transparently across multiple channels, identify pain points, and use journey analytics and management.

Benefits of Buy Now, Pay Later Programs for Businesses

Why would businesses be interested in extending BNPL toward their customers? Here are a few reasons:

      • Expanding the customer base. By making larger purchases more affordable, BNPL attracts new (potentially younger) customers from a wider audience. Younger customers have a greater potential customer lifetime value.
      • Raising conversion rates. One survey found that consumers paying with BNPL were up to three times more likely to complete a purchase after browsing.
      • Increasing average order value. According to two BNPL firms, offering online BNPL solutions increased average order value by 85%. After adding a BNPL option in 2020, Samsonite saw a more modest—but still significant—25% increase in the average value of orders made through their leading payment provider.
      • Lowering shopping cart abandonment. Many consumers who expect BNPL may be put off if it’s not available. According to one survey, 66% of U.S. consumers said they would abandon a purchase if BNPL wasn’t an option.

      Buy Now, Pay Later’s Benefits for Consumers

      BNPL programs enhance customer satisfaction, experience and loyalty by providing:

          • Increased purchasing power. Shoppers who can purchase items they might not otherwise be able to afford are likely to be satisfied, happy customers.
          • Flexible payment options. Consumers can choose the length of the repayment term (usually several weeks to several months) and the payment amount, helping them fit their purchase into their budget.
          • Quick, easy application process. There’s minimal paperwork, and approval is often instant.
          • Convenient, frictionless purchasing process. Consumers can buy products online or via a mobile app with just a few clicks and then pay for them via automated monthly payments. The streamlined process delights customers who expect shopping to be quick, easy, and hassle-free.

          Customer Experience Suffers When Buyers Get Overextended

          For the most part, BNPL gives both the business and customer a way to get what they want. Customers can buy items that they may not have the money for up front, and businesses can convert customers and drive revenue. Despite the win-win scenario, the BNPL option could damage the customer experience if not used responsibly. Taking on too much debt or missing payments could produce financial difficulties for the customer, not to mention a ding on their credit report and late fees.

          Related Study: Customer Engagement Solutions Drive Transformational CX and EX Outcomes

          Communication Is Key to Customer Experience and Regulatory Compliance

          Effective omnichannel communications are essential for a positive BNPL customer experience and compliance with government regulations. The Consumer Financial Protection Bureau (CFPB) plans to tighten regulation of BNPL practices, particularly in areas where there’s risk of consumer harm. In its September 2022 report, the CFPB noted that many BNPL lenders do not provide the standard cost-of-loan disclosures or periodic statements required by the Truth in Lending Act/Regulation Z. To protect consumers, the CFPB will issue guidance and rules to ensure that BNPL lenders adhere to the baseline protections that Congress has already established for credit cards.

          To improve the customer experience and satisfy the CFPB, BNPL lenders must provide disclosures, deliver payment reminders, and give other notices via print, email, SMS and more.

          5 Strategies to Improve the BNPL Customer Experience

          BNPL lenders should:

          1. Communicate transparently to avoid unpleasant surprises and build trust and loyalty. To do this, notify customers of the program’s terms and conditions (cost-of-loan disclosures):

              • Payment schedule
              • Auto-pay requirement (if applicable)
              • Late fees
              • Other terms (such as what happens if they don’t repay the loan in the designated time frame [e.g., an interest rate kicks in or increases])
              • Provide timely payment reminders (if not requiring auto-pay)
              • Make it easy for customers to contact customer service with any questions or concerns


        2. Communicate proactively across channels. Send payment reminders, periodic statements, delinquency notices and other notifications via several channels, including print, email and in-app notifications. Accurate, real-time customer data is essential to generate the right personalized notifications (e.g., late or delinquency notices) at the right time. Identify each customer’s preferred channel(s) to improve the chances of reaching the customer.


        3. Map out the BNPL customer journey. Pinpoint all the touchpoints customers have with the program, from initial awareness to signing up, making payments and completing the program (paying off the loan). Start by managing these customer journeys:

            • Onboarding (e.g., providing cost-of-loan disclosures, enrollment in auto-pay)
            • Payment reminders
            • Delinquency processing


        4. Use journey analytics to monitor and improve CX. To discover how customers are interacting with your BNPL program, analyze customer data such as payment history, customer service interactions and feedback surveys. Examine pain points, patterns and trends that indicate areas that need improvement. For example, if many customers are missing their payments, you may want to send more payment reminders or offer customers the opportunity to change their payment schedule. Additionally, find out where the billing experience might be falling short. Are they confused about their bill or how to pay? Focus on those areas first for quick wins.


        5. Monitor and measure BNPL program outcomes. Track payment completion rate, late payments, delinquency rate, customer satisfaction and other relevant key performance indicators. Use these metrics to make ongoing improvements to the program.

        Related Case Study: ADT Reduces Call Center Volumes by 20%


        CSG’s billing, payment and CX solutions can help improve your CX programs for buy now, pay later success. With 40+ years of billing experience, CSG can help you design your strategy to reduce delinquencies and improve your bottom line.

        Getting started is easier than ever.

Pat Wicketts

Director, Tolling & Smart Mobility