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BNPL Q&A with Hubert Rachwalski, CEO Nethone
We covered all your burning questions brought up during our last LinkedIn BNPL poll.
Not only did you answer my question but you threw a few curveballs, as well! So, I decided to take all your knotty questions and have them answered by an unbiased industry expert.
Meet Hubert Rachwalski, Nethone’s CEO and our invited guest for this BNPL Q&A. So, who is Hubert?
Hubert led Nethone from an early-stage MVP with its first POC to a global business supporting some of the world's leading online platforms. After having passed a number of operational duties onto Nethone's COO, on a daily basis, he is currently responsible for creating and operationalizing the company’s go-to-market strategy, as well as building extensive relationships with the company's current and future investors.
Let’s get to it! How did you end up in the BNPL industry?
We’ve been monitoring the increasing popularity of BNPL for some time now. As the pandemic led to an increase in eComm sales, we could see the emerging challenges faced by BNPL service providers (account takeovers/ATO, customer identity theft and chargebacks, to name a few), but we also knew we had a solution to their problems. For BNPL to work, you really need to have a deeper understanding of the users of such services. For instance, which users have bad intentions? Are the transactions being carried out by humans or sophisticated bots for fraudulent purposes?
Not only must BNPL providers prevent fraud, they need to make credit decisions on users such as Gen-Z and Millenials who may not have a credit record.
Part of what we do at Nethone is studying the online payments process, providing eCommerce companies options to ensure smooth transaction flows whilst simultaneously using our proprietary data to aid credit risk modeling and prevent fraud. It’s because of our solution, it felt like a natural step forward to get involved with BNPL. To date, we have partnered with a few big players that either deal directly with BNPL or has incorporated it into their existing eComm model.
What is your take on the latest acquisitions and partnerships in the BNPL industry?
We know that BNPL is by no means a new phenomenon, but we also know the effects of the pandemic have led to an increase in its popularity. Gen Z and Millennials have been the driving force behind it as they have sought out an alternative to using the services of big banks and credit card providers.
Big eComm merchants and banks have noticed and they don’t want to miss out on the lucrative piece of the pie, so it’s interesting to see companies like Amazon announcing moves to provide a BNPL payment option. Also, in mid-September, Goldman Sachs spent $2.2bn to acquire GreenSky, a BNPL fintech focused on spreading the cost of home improvement loans.
BNPL is here to stay, and it’s expanding, which is why now more than ever, service providers require an effective anti-fraud solution to protect themselves, merchants and customers.
Are we heading for a monopolized industry and, if we are, is that a good thing for the consumer and the merchant?
It remains to be seen how the industry develops. Despite current BNPL acquisitions and partnerships and the potential for more in the future, the very nature of online shopping means customers are always looking for the best prices and deals to buy their desired products. Customers can sign up for multiple BNPL services to receive new joiner incentives and periodic promotions, as well as take advantage of different repayment schedules to suit their needs.
If a monopolized industry did arise, the repayment options would have to keep up with consumer desires to succeed; failing on this could result in a customer backlash and ultimately, a potential decline in BNPL.
Customers without hesitation would then move on to the next online shopping trend that suits them most.
In the past BNPL has been criticized for allowing people to incur unmanageable debt. What would be your response?
This has indeed been a problem that is partly down to insufficient regulation. Some companies, but not all, perform basic affordability checks on potential customers. At the moment there is little stopping individuals from racking up debts across multiple BNPL services.
This is where regulation comes in. Plans are already in motion in the EU to regulate BNPL through an update to consumer credit rules, and in the UK, the FCA has proposed regulations to come into effect by late 2022.
Is the future of BNPL to become global and widespread? What are some obstacles in the way of achieving that?
BNPL is already huge, fueled by the pandemic, by Gen Z and Millennials shunning banks and credit card providers, and more generally, low earners and others simply looking to manage interest-free repayments in a few handy and affordable steps. It’s undeniable that the growth of BNPL is in part down to the lack of regulation, however, although this will change, big eComm players, are already incorporating BNPL into their payment options. Some banks are doing the same with acquisitions (or are planning to).
This is all ongoing, however, there is an understanding that regulation is inevitable. Some analysts believe regulation could be the nail in the coffin for BNPL, however, this may prove to be false.
It wouldn’t be surprising if BNPL becomes just another standard payment method in eComm checkouts - but for this to happen, it needs to be managed well.
What is your take on B2B BNPL?
BNPL has undeniably had an impact on eCommerce. The effects of the pandemic have been huge in numerous ways, but eCommerce has allowed people to continue buying - something that merchants prize above all else - during these testing times. But it’s not just consumers who have benefited.
Merchants unable to obtain credit from traditional banks (loan acceptance rates have gone down due to COVID-19 uncertainty) have opted for BNPL to ensure continued cash flow.
With regulation on the way to combat user debt, and BNPL facing another dent in its reputation due to fraud actors taking advantage of their model, service providers need to act to ensure their continued viability. Lawmakers will deal with the regulation of the industry, but to make the payments experience more efficient, B2B sellers must provide a seamless, omnichannel process supported by smart integrations that anticipate customer needs. The anti-fraud solutions can be provided by companies like Nethone that are backed up by advanced machine learning models.
What will be the next big move in BNPL?
There are many interesting changes afoot, first and foremost, the expansion of BNPL from being mainly focused on fashion retail to other markets. Some service providers are already partnering with high-value retailers to offer electronic goods, and home improvement products, which will be huge. In the UK, the launch of Flava has introduced the possibility of spreading payments for basic grocery shopping.
The very fact that BNPL is now expanding to offer everyday goods means that without regulation, there is the possibility of people falling into more debt, which hastens the requirement for regulation.
Competition between BNPL providers will increase to entice customers with promotions and incentives. Larger eComm merchants will build their own in-house BNPL services not wishing to miss out on potential online custom.
Another interesting hypothesis focuses on BNPL for cryptocurrency-denominated purchases. We can make such an assumption since there is a lot of DeFi-focused capital with room for providing BNPL offerings on crypto.
All of these changes will always have to deal with the threat of fraud, which will increase as we know fraudsters are always adapting their techniques and tactics to current trends. Thankfully, we are part of the solution to combat this threat.
More on Hubert! He holds 2 master's degrees: an MSc from HEC Paris (MIM Grande Ecole) and an MA from the Warsaw School of Economics (Quantitative Methods in Economics & Information Systems). This year he will begin PhD studies in the field of cybersecurity at Warsaw University of Technology. Before joining the Daftcode family, Hubert worked at two of the world’s leading management consulting firms – The Boston Consulting Group and PwC. Specializing in strategic advisory roles for financial institutions, IT companies, and entities from the industrial goods and energy sectors, he has a world-class professional track record.