Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- With digital payments ruling the payment industry, BNPL is another stepping stone towards customer engagement.
- With all the tried and tested financing options available, BNPL has disrupted the traditional financial services due to convenience and alternative for point of sale financing.
- One of the key goals of banking industry is mitigating the challenges of unrecoverable loans, theft, and fraudulent transactions in debit/ credit cards. BNPL seems to be the current transformative force to mitigate these challenges.
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Current landscape
In today’s fast-paced digital world, BNPL is the answer to consumer demands, from the point of flexibility, accessibility and financing extension options.
BNPL has been embraced by the financial sector and consumers as a flexible and quick finance option for fulfilling short term needs. The option of splitting payments into comfortable installments without interest is the most flexible credit/loan criteria available to lending institutions and customers. As BNPL garners interest in the finance space, the Reserve Bank of India (RBI) is now actively formulating regulations/guidelines to monitor transactions to ensure customer safety.
Challenges
Meeting compliance standards and keeping a competitive edge is the main challenge faced by the Indian financial sector.
The existing lending process requires significantly more documentation and verification, a threshold which all customers may not be able to meet. This has been a significant hurdle for customers and banks in lending operations.
With the increase in demand for BNPL services, the need for robust cybersecurity measures is increasingly critical for the multiple avenues available for fraud: account takeover, synthetic identity, sim swap, chargeback etc.
All parties to the transactions can fall prey to fraud. This causes loss of trust in online transactions and comes with high maintenance costs (set-up/ dispute/ credit/ legal risk).
Solution
Introducing an easier way to make payments, embedded with the latest technology to mitigate fraud.
Banks and fintech companies can adopt the latest technologies to mitigate the frauds and challenges discussed above.
- Biometric verification: This should be part of the KYC process while onboarding a customer to the bank’s network. This biometric data should be linked to the customer’s banking activities such as; high value payments, UPI Mandate, recurring/ standing instructions. Implementing biometrics in these areas will bolster customer confidence, rather than depending on 3DSecure for completing transactions.
- Tokenization: Though tokenization involves costs for banks to maintain customer data in the card network, it reduces the risk of exposing customer data to fraudsters. Since tokenization replaces sensitive data, it can be used in online check outs for a seamless transaction experience.
- IP and geolocation analysis: IP and geolocation analysis: Any login attempts from unfamiliar/ different locations from where the card or account is issued, will trigger a sign all for attempted fraud. IP analysis ensures device verification during high value transactions and transactions by priority customers, thus mitigating spoofing risks. By leveraging IP and geolocation analysis banks can enhance their security and improve risk assessment.
With the incorporation of these technologies’ banks can check cyber security fraud to a great extent, boosting customer confidence.
Benefits
Better customer engagement to stay ahead of the competition.
BNPL targets consumers who have a comparatively lower expenditure and who need to meet their requirement urgently with fewer funds in hand, or need a flexible payment method.
A few key points can help banks compete with fintech companies.
- Shorter processing time: Reduces processing time, by not requesting or storing PII data.
- Lowered charges/interest rates: Introduces competitive or no interest rates.
- Flexibility to pay utility bills: Utility bills can be broken into smaller parts.
- Building strong/resistant security measures: Investing more to monitor fraudulent transactions and ensure customer safety.
- Mobility of goods: Merchants prefer banks that offer a BNPL facility that in turn helps them increase their sales.
Attention to these crucial areas will benefit banks, by engaging existing customers more effectively and boosting new customer acquisition.
Road ahead
It’s time to move from the conventional mode of trading and financing to BNPL, factoring in the current growth and significant future projections.
BNPL as a mode of payment is already popular with consumers, especially millennials and Gen Z. This provides banks with a substantial base to increase customer acquisition and retention. With the e-commerce sector growing in leaps and bounds, integration with e-commerce BNPL will provide customers with a seamless check-out experience. Consumers’ trust in banks is higher than fintech companies, which is another reason for banks entering the BNPL payment sphere. Quick and seamless payment interactions combined with easy access to technology and the convenience of shopping from across the globe, make BNPL the preferred payment method. Banks can leverage this advantage to grow their business. BNPL can be made more accessible and extended even to underserved consumers, or those with a poor credit history, with the use of AI to mitigate default risks for BNPL providers.