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  Buy Now, Pay Later (BNPL) services have gained popularity worldwide, providing consumers with a convenient and flexible way to make purchases without immediate payment. In Nigeria, BNPL startups have emerged, catering to the growing demand for alternative payment options. However, with the expansion of BNPL services, the risk of default by borrowers becomes a pressing concern. This article explores how BNPL startups in Nigeria mitigate risks associated with bad borrowers while promoting responsible lending practices.
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Understanding BNPL and its Significance

BNPL refers to a payment model that allows consumers to make purchases and repay them in instalments over a specified period. It offers an alternative to traditional credit-based financing and provides greater affordability and flexibility to consumers. By breaking down payments into smaller amounts, BNPL services make high-value purchases more accessible and manageable. BNPL services typically operate through partnerships with retailers, allowing customers to select BNPL as a payment option during the checkout process. Once approved, customers receive the purchased goods immediately and repay the amount in instalments according to the agreed-upon terms.

Thorough Risk Assessment and Verification

BNPL startups in Nigeria employ rigorous risk assessment processes to minimize the likelihood of default by bad borrowers. They analyze various factors such as credit history, income verification, employment stability, and other financial indicators to assess the borrower’s creditworthiness. Advanced data analytics and machine learning algorithms help automate and streamline this assessment process, enhancing accuracy and efficiency.

Establishing Credit Limits and Monitoring

BNPL startups set credit limits based on the borrower’s financial profile, ensuring that the repayment amounts are within the borrower’s capacity. By carefully evaluating the borrower’s income, financial obligations, and debt-to-income ratio, BNPL services determine an appropriate credit limit. Regular monitoring of the borrower’s repayment behaviour allows for prompt identification of potential risks and early intervention if needed.
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Implementing Comprehensive Identity Verification

To prevent fraudulent activities and identity theft, BNPL startups in Nigeria implement robust identity verification measures. They utilize technologies such as Know Your Customer (KYC) protocols, biometric authentication, and document verification to ensure that borrowers’ identities are legitimate and accurate. This reduces the risk of lending to fraudulent individuals or those with malicious intentions.

Educating Borrowers on Responsible Borrowing Practices

BNPL startups actively educate borrowers on responsible borrowing practices and the importance of timely repayments. They provide clear information about the repayment terms, interest rates, and penalties for late payments. By fostering financial literacy and responsible borrowing habits, BNPL services empower borrowers to make informed decisions and fulfil their repayment obligations.

Collaboration with Credit Bureaus

BNPL startups in Nigeria collaborate with credit bureaus to access credit reports and obtain comprehensive information about borrowers’ credit histories. This allows them to assess the borrower’s creditworthiness more accurately and make informed lending decisions. Integration with credit bureaus’ databases enables BNPL services to identify borrowers with a history of default or excessive debt, minimizing the risk of lending to high-risk individuals.

Implementing Collections and Recovery Strategies

In cases where borrowers default on their payments, BNPL startups employ effective collections and recovery strategies. These strategies may include sending reminders, implementing penalty fees, and employing debt collection agencies if necessary. Clear communication channels and empathetic customer support help in resolving payment issues and finding mutually agreeable solutions.

Continuous Monitoring and Adaptation

BNPL startups in Nigeria understand the importance of continuously monitoring their lending practices and adapting to evolving risks. They analyze borrower data, track repayment patterns, and identify trends to improve their risk management strategies. By staying vigilant and responsive to changing borrower behaviours and market dynamics, BNPL services can proactively address emerging risks and refine their lending processes.
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As BNPL services gain popularity in Nigeria, it is crucial for startups in this sector to prioritize risk mitigation and responsible lending practices. By employing thorough risk assessment and verification processes, setting credit limits, educating borrowers, collaborating with credit bureaus, and implementing collections and recovery strategies, BNPL startups in Nigeria can minimize the risks associated with bad borrowers. Continuous monitoring and adaptation further strengthen their risk management capabilities, ensuring sustainable growth and providing consumers with a reliable and trustworthy payment option. With these measures in place, BNPL services can continue to thrive while promoting financial inclusivity and responsible borrowing practices in Nigeria. Featured Image Source: Pymnts
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This article was first published on 23rd May 2023


Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.

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