With Delinquencies Rising, Experts Advise Flexible Repayment Plans for BNPL Users

With defaults on buy now, pay later loans on the rise, BNPL providers need to be cognizant that creating a flexible repayment plan can not only help improve recovery rates, but help retain delinquent customers by providing a better customer experience during the collection phase, says a study from digital debt-collection agency TrueAccord. 

The latter is important, as BNPL providers are slugging it out to attract and retain new customers. Over the past 12 months, the typical BNPL customer used up to six different BNPL providers. “Retaining consumers, therefore, becomes a priority in the whole customer lifecycle, even post-delinquency,” the report says. 

Two advantages BNPL providers have when it comes to crafting flexible repayment schedules is that outstanding BNPL balances tend to be lower than those on credit cards, and that BNPL repayment rates are higher once these debts go into delinquency. The average BNPL debt is more than $100, but less than $250. In comparison, the average credit card debt is about $1,100, the report says. 

Also, the repayment rate for delinquent BNPL loans at 30 days past due is 30%, compared to 10.5% for credit cards, the study says. At 90 days past due, the repayment rate on delinquent BNPL loans is 60.9%, compared to 34.5% for credit cards. 

One option for crafting a flexible repayment plan is a repayment schedule that aligns with periods when consumers are most likely to have cash available. Taking such an approach leads to a 45% drop in payment-plan drop-off, and low-friction tools to delay or reschedule individual payments reduce drop-off by an additional 13%. 

“Flexibility is crucial in order to minimize those adverse effects when servicing these accounts as they fall behind: highly customized, longer-term payment arrangements are used by 49% of all consumers repaying balances via TrueAccord,” the report from Lenexa, Kansas-based TrueAccord says.

Another way for BNPL providers to improve repayment rates is to offer a variety of contact channels, such as text messaging in addition to email. Adding text messaging on top of email communications can increase repayment rates more than two-fold. 

Targeted repayment outreach leads to 12% higher repayment rates in the first 60 days. Identifying and encouraging consumers who are motivated to regain access to their BNPL service, using the correct combination of content and communication channel, increases repayment rates by 11%, the report says.