Pay in instalments, the Time to yes and Time to no match.

Algoan, the credit decisioning pioneer that democratizes access to credit, in partnership with management consultancy Sia Partners, is publishing a white paper tomorrow entitled "Buy Now Pay Later: reducing the "Time to yes", but at what price?" It is a real guide to the practices and key success factors of a deferred or fractioned payment path (with unprecedented figures on the Southern European market).

" Once offered by traditional banking institutions, deferred or fractional payments are now booming with the rise of e-commerce and the arrival of new players specializing in fractional payments, such as Alma or Pledge in France. But as with consumer credit, these easy payments can quickly become risky and even very complicated to repay. In the Time to Yes race , lenders need to know how to measure risk! While it's crucial that payment paths are smooth, secure and fast, they must also be risk-free. For e-commerce, Open Banking is the watchdog that enables us to strike the best balance between the interests of consumers and those of merchants," says François Gutierrez, Chief Revenue Officer at Algoan.

What is Buy Now Pay Later (BNPL)?

There are 3 main types of product, each with its own characteristics, uses and regulatory framework:

• Payment in 3 or 4 instalments: repayment in less than 90 days (excluding the Lagarde Act). This type of payment involves very simple customer procedures and eligibility checks that require no supporting documents. Acceptance rates are also very high, between 80% and 95% depending on the player. This is the most popular payment method, with outstandings of 6 billion euros in France.
• Deferred payment or Pay later (outside the Loi lagarde), which allows a customer to defer payment, generally between 15 days and 1 month. It is still fairly marginal in France, with outstandings of 100 million euros, as it is riskier for the lender, who collects the amount in a single payment after 2 or 4 weeks without payment on purchase.
• Payment in instalments of more than 4 times, regulated by the Lagarde law, which corresponds to consumer credit (proof of payment and credit check).

A fast-growing market

First introduced in the early 2010s, Buy Now Pay Later has been growing rapidly for around 5 years. According to industry estimates, outstandings could reach 10 billion euros by the end of 2021, compared with 6 billion in 2019. This trend has been reinforced by the economic crisis, which led to the closure of physical stores for several months and encouraged the French to turn massively to digital purchasing channels. Indeed, the development of online sales has suddenly become a key issue for many merchants, who have seen in BNPL a fast and effective way of stimulating them. According to a survey carried out by Opinion Way in June 2020, 78% of customers would be prepared to change retailer in order to pay in instalments.

Usage survey in Southern Europe (France, Spain, Italy and Portugal)

Algoan presents its results from the "Usage du BNPL en Europe du Sud" study, carried out with Happydemics over the period from February 26, 2021 to March 3, 2021 among 4,401 respondents over the age of 18. The sample was surveyed by online self-administered questionnaire (1071 French, 1011 Spanish, 1083 Italian,1236 Portuguese).

• Fractional payments appeal to 30% of the French population (+6 points in 1 year)

Although BNPL does not yet represent the same market share as in Germany and Scandinavia, it has already been tested and approved by a majority of the Latin population. More than one French person in two has already used fractional or deferred payment when making a physical or online purchase. 40% of Spaniards and 33% of Italians have also used these payment methods. The Portuguese are more timid, with only 25% having been tempted. These adoption rates can be explained by the late arrival of BNPL players in Southern Europe.

If we take a closer look at usage, fractional payment is favored over deferred payment. It is used by 30% of the French population, 6 points more than in 2020, whereas deferred payment is used by less than 20% of the population in the countries surveyed. This facility, which enables customers to pay for their purchases 3 to 12 times, is particularly popular with the younger generations, especially those aged 18-34. Digital natives, they even consider BNPL to be a decisive criterion in their choice of retailer.

• Over 50% of French people fear overindebtedness and hidden costs

The main drawback cited by respondents is the risk of overindebtedness. This fear is justified, as the number of overindebtedness cases in France is expected to rise in the second half of 2021. In France more specifically, more than half of those questioned consider that these payment facilities can sometimes give rise to higher than expected costs, due to unanticipated additional charges.

Proof of the use of these payment solutions in moments of financial stress, 4 out of 10 respondents (among Italians, Spaniards and French) have already received a payment refusal within a BNPL course. Refusals for which almost half of the respondents said they had not received a clear explanation. Consumers are therefore largely aware of the risks associated with these payment methods. This is a strong argument in favor of better regulation of BNPL, in order to limit these risks.

All respondents said that an instant analysis of their financial situation would reassure them at the time of purchase. The second element of reassurance mentioned by respondents is the possibility of assessing their ability to repay from the merchant site. Two needs that Open Banking can effectively meet.

The " Time to yes " and "Time to no " match

• "Time to yes": the Holy Grail for retailers and customers!

Today, BNPL pathways are created without any break in the purchasing process, so that the customer can complete the purchase as quickly as possible, without escaping to a competitor's site. These pathways are appreciated by both consumers and retailers, who benefit from much higher conversions. However, the quest for an ever-decreasing "Time to yes" (the time it takes to accept a request for a cash advance) puts aside good practices and warnings that warn consumers about the expense they are about to incur. Time to no" limits the difficult situations ahead for already fragile customers. This could be seen as paradoxical, but a fair balance is essential for retailers and consumers alike, by leaving a few friction points at the moment of payment (avoiding 1-click orders), reinforcing pre-contractual information, and clearly displaying the cost of credit linked to the purchase.

• "Time to no " is just as important, as a safety belt

"The absence of a credit bureau, or in other words a positive credit file, in France makes it all the more necessary to use scoring solutions in purchasing processes that simply offer a cash advance. Consumers are aware and fearful of the potential risks of overindebtedness to which they are exposing themselves by using BNPL. Just by adding a few validation criteria, such as creditworthiness assessment, and making payment acceptance less fluid, can undoubtedly reassure most of them, and prevent them from overestimating their ability to pay or repay. If time to yes is commercially important, time to no is just as important for the creditworthiness of the merchant and the end consumer. The only way to combat time is through Open Banking and scoring ", concludes François Gutierrez of Algoan.