Evolution of lending: Adaptation using the BNPL model

The rise of Buy Now, Pay Later services has brought forward a revolutionary approach to lending. So, how can the appealing features of BNPL be integrated into traditional lending?

Considering BNPL is in effect akin to unsecured lending, and will serve the same purpose for many consumers, it should be a real eye-opener for how traditional lenders can redesign their loan application process. Traditional lenders must take heed of this trend and consider redesigning their application processes to deliver a more seamless and competitive offering.

Of course, BNPL is not currently regulated, presenting lower hurdles than unsecured loans such as less rigorous affordability testing. Yet, its efficiency in onboarding and screening processes can be a blueprint for enhancing user experiences and cutting costs.

Automation plays a pivotal role in optimizing the lending process. Key functions like KYC and AML checks, credit rating assessments, and ID/address verification can be effectively automated using the right solutions. The integration of Open Banking can facilitate complex affordability assessments, managing risk levels more efficiently.

However, the desire for speed should not compromise risk thresholds. Designing applications with sufficient data collection points is crucial, necessitating a close cooperation between the risk department and application developers. Overcoming cultural obstacles between teams is the key to delivering a solution that meets both desirable and necessary requirements.

In conclusion, the rise of BNPL is more than a trend—it's a strategic lesson for traditional lenders. Enhance efficiency, automate intelligently, and foster collaboration for a lending landscape that's not just adaptive but truly transformative.