Why the human touch is a must for Buy Now Pay Later providers – by Colin McMahon and Scott Collin

In just a matter of weeks, the Financial Conduct Authority (FCA) will be bringing the first phase of its new Consumer Duty into force – rules which will ensure that customers receive positive outcomes on all active products, including renewals.

That day will come on 31 July and it’s especially focussing the minds of fintech firms, including those who offer massively popular Buy Now Pay Later (BNPL) services such as Sezzle, Zip, and of course Klarna, who have grown to 150 million users globally, with around 15 million in the UK.

The BNPL industry, which by 2024 will have grown by 181% in just two years, is considering the challenges they will face and how best to not only manage their business in a future regulated and scrutinised environment, but also operationally when it comes to their end-to-end customer journey.

There are divided opinions on the BNPL industry. There are those who are in support as consumers avoid paying interest, interest which can cause a cycle of indebtedness, and those who have concerns at the ease with which it allows consumers to purchase goods beyond that which their finances would normally allow for. Whilst this division in opinion continues in heated debate, there are some certainties. If full regulation is passed in Parliament this year, BNPL operating costs will significantly increase and these costs will likely be passed onto consumers.

An interesting trend we’re seeing is that mainstream lenders are starting to offer versions of BNPL which suggests this type of payment is here to stay. What was once disruptive will become the norm and therefore, differentiation and the customer journey will be key.

Experienced, regulated and cost-effective partners

When looking at their cost base and expertise gaps, many BNPL specialists should now consider turning to regulated partners who can manage the customer journey especially where digital doesn’t work and human interaction is needed. Working with Customer Experience experts who can take on the customer contact aspects allows BNPL firms to focus on their specialisms around technology, building partnerships with retailers, and growth.

Operating in this new environment will bring heavy scrutiny and the new Consumer Duty will place a spotlight on firms to be across customer interaction like never before. That will require experienced partners and, with the business process outsourcing sector containing some operators that are already regulated, it makes the likes of Sigma Connected perfectly placed to advise and step in.

The other main challenge BNPL firms will face is dealing with customers still in a cost-of-living crisis, many with mounting debts. That needs, as I’ve said, a delicate human interaction from people who understand individual positions, offer solutions, and even provide someone who can truly relate to their issues – especially as the online-obsessed younger generation purchase more and therefore take on more debt. Going forward for BNPL providers, that’s going to be a really powerful and necessary tool if outcomes are to be realised.

With the UK dynamics of increasing staff costs and attrition, our offshore team in Cape Town have also seen significant growth due to their professionalism, empathy, and analytical skills which come in at half the cost of the UK for the same performance. So here at Sigma Connected, we can offer BNPL firms that tried and tested offshore dimension too.

Taking the next steps

This is only a brief blog post to help raise the profile of the very real challenges BNPL firms are facing in a tighter and, very likely, soon to be regulated sector.

In anticipation of BNPL legislation and regulation, BNPL providers would be wise to make headway in two key areas. Firstly, begin the process of streamlining their customer experience costs inline with documenting their end to end process and policies in preparation of increased governance, and secondly, begin applying the Consumer Duty in their business ahead of time to ease the burden during authorisation when it inevitably comes.

Sigma Connected can help BNPL providers overcome the operational and regulatory challenges which I know are causing debate in boardrooms up and down the country.

For many, that will mean doing things differently. But like I said at the outset, fresh expertise and ways of working will ultimately make the difference in executing a cost-effective customer journey that includes the all-important human touch.

About the authors

Scott Collin is Head of Global Partnerships at Sigma Connected with 25 years of delivering customer service excellence within regulated industries. Readers and BNPL businesses can email Scott at Scott.Collin@sigmaconnected.com, or connect with Scott on LinkedIn

Colin McMahon is Director of Financial Services at Sigma Connected. Colin has over 30 years’ experience in financial services with specialisms in collections and recoveries operations, analytics and strategy development, supplier management, and credit and operational risk. you can email Colin at colin.mcmahon@sigmaconnected.com, or connect with Colin on LinkedIn.