What issuing banks can learn from BNPL to increase consumer satisfaction and revenue

What issuing banks can learn from BNPL to increase consumer satisfaction and revenue

Dec 1, 2021

It’s painfully clear how much Covid affected consumer spending. As the global payment industry shifts toward e-commerce and digital payments, the competition for customer acquisition and retention among credit cards, banks, and merchants is reaching new heights.

In their 2021 State of Credit Report, Marqueta surveyed 3,500 people across the U.S., U.K., and Australia about their payment methods and habits. Most respondents (62%) reported having between one and five credit cards, on average. However, over 70% of consumers who have used Buy Now Pay Later said they would like to use it more in the future.

Still, consumer preferences place credit cards in the lead for everyday convenience. So what can issuing banks do to raise consumer retention and satisfaction as BNPL plans to offer banking services soon? It’s all about the consumer experience.

BNPL and other payment trends

The e-commerce evolution has put the financial industry on the lookout for opportunities to increase payment approval rates in creative ways. Simultaneously, consumers’ growing expectations place pressure on the market to provide the most pleasant user experiences.

While credit cards are currently the preferred payment method, alternative methods like Buy Now Pay Later are continuing to increase in popularity, especially among younger generations.

The report revealed that 78% of respondents use credit cards, while 25% said they actively use Buy Now, Pay Later (BNPL) services.

59% of 18-24-year-olds BNPL users said they would happily replace their credit cards with BNPL. Additionally, 52% of survey respondents said they would be open to accessing more financial services through a BNPL provider. The BNPL customer experience is proving to be a positive one for consumers.

The BNPL method is proving to be popular, so issuing banks and processors must focus on the user experience if they want to keep their top of wallet position.

Customers prefer their credit cards

Digital marketplaces are expected to account for about 60% of the digital-commerce volume in the next few years. Based on Marqueta’s report, the only clear benefit issuing banks have over BNPL is credit card rewards.

Over 60% of Australian, U.K., and U.S. respondents said credit cards remain a more attractive proposition because of their reward structure. More than two-thirds of consumers surveyed (68%) said they use their credit card at least weekly, with more than one in four (27%) using it daily.

Furthermore, 72% of consumers are more credit-conscious post-pandemic, with 60% saying they are more aware of budgeting and saving than before Covid.

With the payment experience being a deciding factor at checkout, issuing banks must do everything they can to make the experience quick and easy. One way to do this is to approve legitimate payments by enhancing and optimizing the approval process.

Kenbi has created a way to leverage the joint interests of issuing banks and merchants to improve the consumer buying experience. How? By giving consumers what they want.

Offer a better and seamless buying experience

17% of all eCommerce payments are declined. At least half of these are funds related declines. Riskified’s 2019 report found that most consumers suffering from falsely declined transactions are experiencing significant life events like weddings or having a new baby.

Denying those payments at such a sensitive time can tarnish the issuing banks’ reputation beyond repair and push consumers to seek other forms of payments.

One competitive advantage for banks and processors is collaborating between issuing banks and merchants to approve transactions that would otherwise be declined but without added risk.

Split the risk to approve more legitimate transactions

Kenbi helps banks approve more declined transactions by splitting the risk cost with merchants. This is the only course of action when you have nothing to gain and a lot to lose. Until Kenbi that is.

Issuing banks define their rules based on risk factors and price the risk, while merchants define their guidelines of acceptable risk cost for various scenarios.

Each new transaction is checked and approved by powerful AI in real-time based on predefined rules of both parties. Ensuring both sides have more to gain is the key to splitting the risk cost. If the risk factors are high, the transaction is still declined.

Summary

Most people around the world prefer to use their credit cards. To keep it that way, banks and payment processors must provide an excellent consumer experience. The less disruptive and complicated it is, the better.

Kenbi offers a seamless solution that doesn’t affect the payment flow but still keeps consumers satisfied. Start increasing your consumer retention and revenue today. Contact us to get started.