How Buy Now Pay Later (BNPL) Is Bringing E-Commerce Into The AI Era

E-commerce continues to grow and evolve, with new business models and services coming onto the market all the time. What was once a simple purchase of goods online has now become a virtual marketplace with a multitude of services to suit every need. In this digital age, consumers are looking for experiences that are tailored to their individual needs, which is why BNPL has become an essential tool for online stores.

Buy Now Pay Later (BNPL) has grown in popularity, but its hazards have increased as a result of the cost-of-living problem.

As a result of client preference for BNPL managed by banks, these institutions gain access to the data necessary for explainable AI solutions that result in superior goods for the customer.

Let’s take a closer look at how Buy Now Pay Later (BNPL) can bring e-commerce into the AI era, and why you should consider it as part of your marketing strategy moving forward.

What Is Buy Now Pay Later (BNPL)?

Buy now pay later (BNPL) is a flexible payment option that allows customers to purchase goods on credit and pay them back over a set period of time. Payment periods vary, but most BNPL plans offer monthly payment plans between 12 and 42 days. BNPL works with a retailer’s existing credit provider and allows customers to make purchases without having to provide a credit card. Consumers can pay their bills back on a monthly basis, and they do not have to pay any interest on the amount they borrow.

What’s more, BNPL can be applied to both online and in-store purchases, including vending departments like cafeterias at hospitals, so there’s no need to restrict it to online shopping alone. BNPL allows retailers to increase their sales by widening their potential customer base while also providing a flexible payment option for repeat customers.

BNPL programs usually come with low-interest rates and provide customers with the option of paying their bills in full once they’re due. For instance, BNPL plans are particularly beneficial for younger individuals visiting the emergency room who may not have a solid credit history and have problems accessing special payment programs geared toward uninsured patients. What’s more, BNPL has no impact on a consumer’s credit score as it is recorded differently from regular loans.

While the concept of paying in installments is not novel, it is revolutionary how modern technologies, such as open APIs, cloud computing, and artificial intelligence, have provided new levels of speed, scalability, and seamless connection with consumer platforms.

This technology drives rapid expansion. Approximately 360 million individuals currently use BNPL, but that number is predicted to nearly treble by 2027, to nearly 900 million. From 2021 to 2030, this extrapolation predicts a yearly increase in market size of 45%. The market size would increase from $132 billion in 2021 to $850 billion in 2026.

BNPL Is Helping To Advance E-Commerce

When it comes to e-commerce, BNPL is helping to advance the industry in a number of ways. Not only does it provide customers with a flexible payment option, it also allows them to shop with the confidence that their data is safe. When clinic patients make purchases with BNPL, they know that their critical information is in good hands, which means they are less likely to worry about fraud and more likely to go through with purchases in the future.

BNPL allows customers to take out payment plans on a monthly basis, which means they can pay their bills in a way that is convenient for them. BNPL also provides retailers with the opportunity to cross-sell and upsell, and allows them to promote additional products and services to customers, which ultimately helps them generate more sales.

As consumer protection concerns have developed, regulatory scrutiny of Buy Now, Pay Later has followed naturally. Increasingly, global regulators are focusing on credit checks, transparency, and education.

And as some analysts, such as S&P Global, have remarked, such investigation creates a window of opportunity for sellers and banks to enter the market after they have lost billions of dollars in annual income to pure-play Buy Now Pay Later suppliers.

?Knowing more about their customers enables sellers to provide a variety of BPNL options. One example is "pay later" services, in which merchants can retroactively offer customers the option to convert qualified past transactions into a Buy Now Pay Later loan. Such a retrospection would benefit people struggling with cash flow while enabling the seller to limit default risk by picking only those with pre-underwritten credit risk.

When this customer data is used by an AI engine that is clear and easy to understand, instead of a "black box," the chance of doing good is even higher.?

In a typical online purchase scenario utilizing AI-powered BNPL services, for instance, the consumer is presented with the BNPL payment option at checkout. The seller has predetermined a variety of Buy Now, Pay Later "flavors" (instalment amount, frequency, duration, and interest rate). At this point, the client will be given AI-based predictions of how much money they will have to spend in the future, such as their expected net disposable income.?

These estimates are accompanied by simple-to-understand explanations that highlight the primary causes underlying the calculated amount. Customers can also obtain tips regarding budgeting changes they need to make in order to better afford the various BNPL alternatives. As a consequence, all parties benefit.

This beneficial use of customer data enables BNPL to serve as an extra revenue source for sellers and banks while reducing delinquency and compliance concerns and fostering customer loyalty. In addition, by selling BNPL directly under their brand, retailers may engage with digital-native, Gen Z clients who are heavy users of Buy Now Pay Later and who are otherwise difficult to contact. And for the customer, it keeps the BNPL experience smooth and helps them make well-informed spending decisions, which counteracts the natural biases that come with human behavior.

Consequently, explainable AI can unlock the future sustainability of this growth, just as digital technology permitted the market's current growth level. It is a wonderful illustration of how technology can be used to enhance banking.

Conclusion

Consumers want a seamless and transparent experience when it comes to online shopping, and BNPL provides them with just that. BNPL allows customers to make purchases on credit rather than cash by extending their payment period for up to 42 days after delivery and BNPL enables extra revenue streams for merchants and banks, which develops customer loyalty and trust while controlling delinquency and compliance issues. As e-commerce continues to grow, so does the need for new business models and services.

BNPL is one of these models, and it is set to bring e-commerce into the AI era with its flexible and transparent payment options. When the world was first introduced to e-commerce, it was almost unrecognizable compared to how it looks today. But even though the industry has undergone significant changes, one thing that has remained constant is the need for new and improved payment models. When all said and done, BNPL is helping to advance e-commerce in a number of ways.