Managing Consumer Debt Post-Holiday Season in the Age of BNPL
As we enter the holiday season, it’s a time of joy for consumers, businesses, and financial institutions alike. This festive period has seen unprecedented consumer spending, driven largely by the surge of Buy Now, Pay Later (BNPL) services. Let’s explore the key facts shaping this trend:
Holiday Budget Boost: Deloitte predicts a 5% increase in the average holiday budget compared to 2020. Retail executives are optimistic, with 7 out of 10 expecting higher consumer spending in 2023.
Significant Spending: Adobe’s data indicates that consumers are set to spend $21 billion more than they did in 2022 during this holiday season.
Consistent Consumer Spending: NPD data shows that 86% of US consumers plan to maintain or increase their holiday gift spending compared to the previous year.
The ascent of BNPL services has profoundly influenced consumer spending behavior, enticing them to make purchases beyond their usual means. This article will delve into the impact of BNPL on consumer behavior during the holidays and outline strategies for financial institutions to recover increased Consumer Debt Postseason and also how a third-party debt collection agency can help in the process.
BNPL’s Influence on Holiday Spending Consumer Debt Post
While holiday spending has been on the rise for years, technological innovations have accelerated this trend. The proliferation of e-commerce and m-commerce has allowed consumers to purchase goods from anywhere globally. However, the emergence of BNPL introduces new dynamics:
Expansive Shopping Carts: Traditionally, consumers could only buy what they could afford or rely on credit. BNPL, often interest-free, enables consumers to purchase more during the holiday season, leading to larger shopping carts.
Repeat Purchases: BNPL has gained popularity, particularly among younger consumers. In March 2021, 61% of US consumers aged 18-24 reported using BNPL, up from 37% in July 2020. The convenience of BNPL encourages repeat purchases and fosters brand loyalty.
Attracting New Customers: The simplicity and convenience of BNPL services make them attractive to new consumers, creating a steady influx of customers for businesses.
Boosted Conversion Rates: BNPL eliminates the issue of cart abandonment due to affordability concerns. When consumers can access their desired products immediately and schedule payments, conversion rates increase.
Why Financial Institutions Should Be Concerned
While increased holiday sales appear promising, there’s a catch for financial institutions, especially BNPL providers. They must ensure the recovery of owed funds, or they risk investing significant time and resources in debt collection. In 2022, US holiday debt averaged $1,981 per person, with over 50% of Americans using BNPL to cover expenses they couldn’t afford. A recent report reveals that 13% of US consumers are still paying off last year’s holiday bills, and 51% expect to incur holiday shopping debt in 2023.
This concern isn’t unique to the US; it’s a global issue. British lawmakers have even suggested regulating BNPL services to prevent overextension.
Recovering Holiday Debt
To enhance their debt recovery efforts after the holiday season, financial institutions can leverage the following four functionalities within their collections management systems:
Self-Service: Empower consumers with control over their debt, enabling them to engage in the debt recovery process autonomously. This approach allows customers to select suitable repayment methods and schedules, avoiding awkward conversations with third-party debt collection agencies.
Flexible Segmentation: Tailor your dunning messages to cater to individual past-due customers. Segment customers based on demographics, repayment history, and preferences to personalize your communication, significantly increasing repayment rates.
Machine Learning/AI: Employ machine learning and AI to monitor customer behavior, assess the effectiveness of your outreach, and identify areas for improvement in your debt recovery operations. This data-driven approach ensures targeted and effective collections.
Account Management: Streamline account information, including contact details, repayment history, and interactions with collections personnel, into a unified platform. This provides collections agents with comprehensive insights, enabling them to understand customer behavior and encourage timely repayments.
In summary, as the holiday season approaches, financial institutions must prepare for the challenges of increased consumer debt fueled by BNPL. By implementing these strategies and embracing technology, institutions can enhance their recovery rates and ensure a smoother transition into the post-holiday period. Or hire a third-party debt collection agency to do the work on your behalf.