Keeping consumers safe and satisfied is at the heart of any fintech, credit, or BNPL service provider. With countless transactions made daily, it’s imperative that fintech companies provide customers with the most robust risk management services out there. But what exactly is involved in risk management. There are many factors to consider. In this article, we will break down what sorts of risks fintech companies and BNPL providers face and how they tackle them.
Fintechs and BNPL Service Providers Defined
Let’s define these two terms. Buy Now, Pay Later (BNPL) is a solution or service provided by a fintech company. A fintech company can be a dedicated BNPL service provider, such as Klarna, Sezzle, Affirm, Afterpay, and many more companies. Not all fintech companies are BNPL providers. Some may offer this specific service as one of many solutions.
There are many types of fintech companies that also handle digital payments and lending services, operating in various sectors such as mobile payments, digital banking, peer-to-peer lending, robo-advisory, insurance technology (insurtech), blockchain, and more. Fintech is a diverse and evolving industry with a wide array of specialized services and solutions. While all BNPLs are fintech companies, not all fintech companies are BNPL. Both, involve a lot of risk assessment and management.
Types of Risk Fintechs and BNPLS Face
By assuming complete responsibility for the credit risk and fraud risk associated with transactions, Buy Now, Pay Later fintech companies and providers empower merchants to concentrate on their primary operations and enhance the overall shopping experience for their customers. Here are the types of risks fintechs take on when processing transactions and providing BNPL services.
- Fraud Risk
- Merchant Risk
- Regulatory risk
- Anti-money laundering and countering terrorist financing
- Consumer Risks
- Cybersecurity and Data Privacy
- Credit risk and operational risk
- Outsourcing Risk
Fintech companies and BNPL providers are built inside and out with complex and dedicated risk analysis software that detect, scan and attack threats and potential threats that come with countless and daily cross-border online transactions. This is essentially why fintech today is so successful and undergoing such a massive boom.
Fintech was born out of a necessity to safeguard and facilitate the growing online financial infrastructure. Through fintech, more merchants can forgo risk and focus on doing what they do best, servicing and selling to their customers wherever they are.
How Fintechs Companies and BNPL Providers Manage Risk Successfully
Buy Now, Pay Later providers, and fintech companies mitigate transaction risk for merchants and customers through the processing and analysis of masses of data. This is achieved by combining various data sources, including information on principal ownership, risk details, business cash flow analyses, payment history, detailed profiling, banking history bankruptcies, liens, and even social media analysis.
By utilizing these data points, buy now, pay later fintechs and providers can enhance their understanding of the merchant partner’s risk profile. Some providers collaborate with third-party experts, others however have developed robust risk management modules that take on data analytics, risk scoring/index modeling, and decision automation. Companies like Tarya Fintech provide end to end solutions from lending to risk management to installment or loan management.
These components play a crucial role in enabling swift approval or decline decisions during onboarding and promptly responding to evolving risk conditions through continuous monitoring.
Needless to say, a comprehensive risk assessment conducted by a fintech BNPL provider leads to heightened customer satisfaction and, consequently, generates additional revenue streams.
