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BNPL Risks

BNPL – Risky Bet?

The Buy Now Pay Later (BNPL) model is a popular payment plan for small holiday purchases, such as furniture, appliances, electronics, and sporting goods. To earn this plan’s benefits, the seller must offer the product for sale on their website during a specified period. Sometimes during this time period, consumers are required to make a down-payment or otherwise deposit funds into an account held by the seller. When the purchase date arrives, the consumer pays only a partial amount and is then responsible for the balance upon delivery of the product. While this type of payment plan often sounds as if it would offer greater protection to consumers, what risks do lenders face when they offer this type of financing?

Risk associated with BNPL

Potential risks from the business perspective include:

Declining sales

When the seller has set a specific start date for their “sale,” customers are probably less likely than usual to purchase on that day. Because customers are influenced by the start date, this may also discourage them from purchasing in the future.

Creditors not receiving payment

BNPL agreements place consumers in a position of financial responsibility for products they have purchased before they have received them. For some consumers, this is a result they could have expected and planned for. However, others may be surprised to find that the only source of funds available to repay their loan is the sale of their product, resulting in payment delays or non-payment altogether.

Consumer awareness

BNPL agreements are typically communicated through the seller’s website and on their sales flyer. While many consumers read such materials, others may not realize that they are creating an obligation to purchase an item of value. Therefore, consumers who do not comply with the agreement must be given additional information by the lender, which can also lower the success rate of BNPL financing.

Some companies that offer to buy now pay later services include BuyEasy.com,  BuyLater.com , ZippyPay.com.

 

Why it is risky to buy using BNPL?

The decision to buy now and pay later is indeed a risky business. With sites like Rent-to-Own, which will allow you to purchase items with the option to pay in installments with no credit check, you can get things you can’t afford just yet with little or no hassle. But is this really wise?

There are many risks involved in these types of transactions. One of the most obvious is the interest rate; it will be much higher than if you could get a credit card or bank loan.

This is especially true if you have low credit and lack the ability to qualify for a traditional loan. This can prove very costly, especially if the item is something you really need or if it’s a very expensive item.

But there are other issues as well, and they are often not so obvious. For example, let’s say you’re trying to buy a car. You’d like to purchase one that has only four thousand miles on it, but you budget only three grand for the car. You’d happily pay three grand for the car (with a $200 warranty) but the dealer won’t let you drive out of the lot until you’ve paid five grand.

How much of a deal is this? You’re going to be paying way more in interest than if you had done something else that was much simpler and less risky.

The problem with these kinds of deals is that they often have hidden fees and conditions that will probably come back to bite the buyer.

If this is how you have to buy things, then you need to make sure that you are aware of your rights and how these types of deals work. You’ve heard the classic expression “Buyer Beware”; well it’s certainly true for buying now and paying later.

Paying over time reduces the risk of buyer’s remorse. If you are thinking about buying something, you may fall in love with it, but then change your mind when you actually have it at home.

This may only work if you’re not buying items that have a high resale value, so it doesn’t work for buying stuff like furniture or electronics.

If you’re paying for things over time and then end up going into debt, then it may be a good idea to cancel the payments and refocus on paying down the balance.

 

Summary

Many people who use buy now, pay later don’t actually have a big problem with debt and are using it as a way to save money. They certainly may not be putting their finances at risk, but that doesn’t stop them from being wrong about the concept.

ChangeMaker V/s Project Manager

BE THE CHANGE YOU WANT TO SEE IN THE WORLD

 

A project is a synonym for change. Project management executes the vision and mission of a change into reality by a project manager. However, there is a need to shift the parochial paradigm from managing and leading the change to making and owning the change.

 

The next gen project manager doesn’t just manage change and wishes for change. They take ownership and accountability to make the change happen. Using their knowledge, resources, and determination, they push through the resistance and drive the change. They may not possess all the skills needed, but they know best how to use their resources within the constraints. They are the ones who connect the dots, unearth the blind spots and influence the outcomes through cogent focus and commitment. They are determined. They transform their circle of influence. They are the Changemakers.

 

In today’s fast-paced world, most mediocre project managers are engrossed in following processes and systems. They do not think out of the box. Without a holistic approach to optimize current structure and systems, they fail to achieve their outcomes efficiently. They are more focused on ticking all the boxes, indulging in the quick GTM strategy.

 

In contrast, the Changemakers, armed with their design thinking mindset, focus not only on improving the customer experience but on overcoming resistance from all corners. With their firm beliefs and passion in stride, those people-oriented Changemakers are thoughtful, compassionate, and full of empathy. Changemakers are those people with humility and integrity who not only use their skills, expertise, and authority to bring positive change, but also to set new trends. Who doesn’t know of revolutionary changemakers like Mahatma Gandhi or Dr. Martin Luther King?

 

 

The Changemakers use their collaborative nature, expertise, and authority in a way that brings positive social change and affirms the humanity of stakeholders. Changemakers have the freedom, confidence, and societal support to address any problem and drive change. Table 1 illustrates the difference between mediocre project managers and Changemakers.

 

Changemakers focus on lean changes at a time which can lead to a monumental transformation or WoW (Ways of Working) revolution over time. Their primary focus is the MVC (minimum viable changes), ensuring that teams stick to changes that worked and discard those that didn’t. They ensure these changes happen gradually, not suddenly, and out of nowhere. Changemakers weigh the cost of a change and prioritize changes by considering which of them would have the larger impact in a shorter time, thus implementing it in “thin slices” that work for stakeholders. They also assess how well changes work in practicality, applying that experience for future changes.

 

Changemakers unconsciously follow the Agile manifestos: responding to change over following a plan and harnessing it for the customer’s competitive advantage. They make the journey cherishable, relatable, and memorable for the people they work with. Changemakers rewire the brain to change the de facto response.

 

The Changemaker focuses on changing culture by revamping and fixing the system. They come out of their comfort zone and move towards the learning zone, ultimately breaking into the growth zone. They are the next-gen leaders; they are the ground breakers; they are the social drivers; they are the social entrepreneurs. They are reinventing WoW. They are not only the game influencer and the game player but also the game-changer. They are the Changemakers.

 

 

It’s time for project managers to upskill and upgrade themselves. Think differently, change the game, and make the change!

 

 

Fintech Disruptor

One might remember banking experiences three-four decades back. When you go to the bank to update the passbook, you drop it in a basket and go back the next day to collect it. The process took so long since the banker had to reconcile entries from a huge B4 size ledger book and manually update the entries in the passbook. Gone are those days!!! The banking industry has come a long way from the 80s and 90s. Today, digital banking gives us notifications on a real-time basis with a tap on mobile or wearables – be it transactions, bank balance, or statements.

 

While banks have transformed themselves with innovative digital offerings, several incumbent and Neo banks have made a significant dent in traditional revenue with their innovative digital transformation initiatives. To sustain high growth and customer retention, traditional banks need to traverse the extra mile and develop hyper-personal relationships with customers turning apathy into emotional connection.

  

These days, a frictionless digital banking experience is inevitable to maintain or increase the market share of the banks. Omni-channel experiences, smart onboarding, microservices-based architecture, cloud-native approach, or automation – these are de facto expectations from the banks. The main reason behind these high expectations is Fintechs, raising the bar for banks in the post-pandemic world. Millennial and Gen-Z customers are now looking for an exceptional banking experience in all areas, not isolated service.

 

To ‘provide value for the money’ or exhibit customer-centricity, banks ought to step up their game plan by increasing their focus on innovative offerings. With over 26,000 Fintechs operating worldwide, banks have to go beyond their usual territory and provide hyper-personal curated banking experience by embracing ML, NLP, and open APIs. Not only do legacy banks need to innovate and implement, but even central authorities like RBI should become liberal and revise their policies to promote healthy competition and innovation culture across the BFSI segment. Several innovative initiatives are becoming mainstream because of Fintechs, which can be adopted by banks in a phased manner. Banks can embrace following leading-edge technology to remain ahead of the cut-throat competition.

  • Enable Composable banking whereby the customer is not tied to a specific vendor, product, or technology. For an instance, Mambo provides over 4000 products from different banks, NBFC, and Fintechs on its platform.
  • Augment innovation quotient like ENBD, which provides an additional interest rate based on the number of daily steps (5k or more) taken by individuals. They are also planning similar benefits for other exercises like swimming, etc.
  • Enable community banking by providing Value-added services to Gig workers, LGBTQ, senior citizens, or disabled customers to cater to their specific needs.
  • Implement platform banking by integrating value-added services from Fintechs or others to provide a holistic experience to maintain customer loyalty.
  • Increase customer engagement through gamification to attract kids and teens to build brand loyalty early on.
  • Develop AR Tool for personal finance management as done by Westpac.
  • Provide AR/VR experience to the customer whereby they can visit the virtual mall for a shopping experience through All-in-one SuperApp.
  • Provide 24×7 chatbots using AI and ML.
  • Combine AR/VR with AI to create seamless, immersive experiences for the customer, say for virtual branch visits, thereby creating loyalty, brand building, and arresting customer attrition.
  • Use alternative data for taking decisions, like predicting default risk. This can be innovatively inferred based on behaviour and personality traits captured in social media. This can help the bank speed up recovery or restrict future lending.
  • Bring assurance or options to customers that the bank’s profits or part of it will be invested only in “Clean energy” to reverse the climate crisis like Swipe.
  • Develop an algorithm to link likes on social media to the interest rate.
  • Provide Goal-based savings options to facilitate healthy savings.
  • Provide multi-lingual AI and Robo advisors, ranging from personal finance to goal-based investments.
  • Boost customers’ credit scores by providing micro-loans to step up their borrowing capacity.
  • Propose smart vehicle insurance which can adjust your premium amount depending on your usage, location, driving style, and discipline.
  • Use of IoT in ATMs to sense queue length and provide an option to an exception in authentication based on a customer’s past transaction history.
  • Use of smart contracts to allow users to take out a short-term loan using Ether as collateral.
  • Bring out voice-enabled payments for visually impaired or handicapped people.
  • Automate claim payment minus manual filing, in case a flight gets delayed beyond a certain agreed duration as per insurance policy .
  • Use novel biometric security like iris recognition, palm vein patterns, or retinal scanning.
  • Offer contact-less, gesture-based ATM transactions like the one developed by Motion Gestures.
  • Embedded Rounding off to nearest pre-defined unit to create either investment pot with delta money or help achieve goals that emotionally engage them.
  • Implement blockchain for immutable records and security and speed up money flows for a variety of transactions like property registrations, funds transfer, supply chain, trade finance, and payments transactions.

 

Few of these suggestions will certainly bring loyalty among happy and satisfied customers. This type of digital transformation will also increase employee engagement. This results in higher productivity, accurate predictions, and decision-making.

 

Digital transformation is full of risks and challenges. Organizational challenges, data governance, data privacy, cultural mindset, compliance risks, regulatory risks, or lack of skilled resources can become roadblock but it can be addressed in innovative ways. But this puts brakes on the delivery and execution of the initiatives. However, for the larger benefit of shareholders and investors, banks need to show the same agility as Fintechs to survive and grow.

 

As Darwin’s law of Survival of the Fittest suggests, only Agile and customer-centric futuristic banks will flourish and fare well in the future; rest will get acquired.

Web3.0 Impact on Banking

Banks have always taken great care to remain competitive in the market despite the other stressors that come with this category of business. The latest one on top of their list is Web 3.0, otherwise known as Virtual Reality, Augmented Reality, and Artificial Intelligence — all of which are just different flavors of the same thing: a much closer interaction between people and computers.

 

The main impact of Web 3.0 on the banking sector may not be as pronounced as expected, but it is more likely to be negative than positive. The banking sector has always been technology-driven and, with the help of Web 3.0, these banks may find it difficult to adapt to this environment.

 

Facts and studies done on the impact of Web 3.0 in banking sector

The recent BFA study was commissioned by the National Consumer Law Center (NCLC) and the American Bankers Association. It studied how banks were preparing for Web 3.0, which they identified as a major area of concern among banks.

 

The study surveyed over 300 banks and gathered their perspectives on how they were planning to adapt to Web 3.0. They found that most banks had already taken a proactive approach in addressing the future needs of consumers, but some major upcoming challenges need to be considered.

 

This includes technological limitations, operating costs, and legal constraints. One of the biggest worries is that customers will naturally gravitate towards payment methods with better customer service and security, such as credit cards or electronic wallets, instead of using their bank accounts.

 

Blockchain can enhance this process and lower these costs. Using blockchain for KYC purposes could reduce personnel requirements for banks by 10%, equating to cost savings of up to $160 million annually.

 

Web 3.0 will largely be built on three new layers of emerging technologies – edge computing, decentralised data networks and AI.

 

There is a growing application of ML to analyse large data sets in security. As attackers use ML, we need machines that can respond in seconds.

 

The cycle of change is undoubtedly constant, but its speed has certainly sped up during the pandemic. Going forward, Web 3.0 and transition towards decentralization, digital currencies, ability to monetize data effectively and stronger ecosystem collaborations for customer-centric service will continue to drive the evolution of the financial services industry.   

 

Blockchain and crypto tokens can bring many potential benefits, such as faster and cheaper cross-border payments and trade finance, but they need to be more stable in value and have a credible backing. 

 

Decentralized finance (Defi) refers to digital assets and financial smart contracts, protocols, and decentralized applications (DApps). Also based on distributed ledger and blockchain technology, Defi challenges the centralized financial system by disempowering the middlemen and focusing on peer-to-peer networks. The ‘total value locked in Defi’, which shows how much money is currently working in different DeFi protocols, has increased significantly in the last two years. There are several use cases of DeFi and they are continuously growing. It lets one send money around the globe, stream money around the globe, access stable currencies, borrow funds with or without collateral, start crypto savings, trade tokens, buy insurance, and manage one’s complete financial portfolio under one system.

 

There are several benefits of even Defi Insurance as below:

  • Protection of Defi Deposits
  • Protection against crypto volatility and flash crash
  • Immediate redemption of tokenized crypto
  • Protection against the risk of theft and attack on crypto wallets
  • Protection of funds from hacks on exchange platform
  • Identify fraudulent claims
  • Increased reliability of medical history
  • Reduced overhead cost because of efficiency and speed in the claim processing

 

Disadvantages of Web 3.0 in the banking sector

 

Blockchain technology has many advantages, but one prominent disadvantage is that it’s inherently secure without specific third-party support, since the system relies on a “trusted” third party—a node—to make sure the ledger is secure and that no one tries to tamper with it.

 

Therefore, blockchain developers have been working on a method of maintaining security after the protocol itself has been implemented. This is called “consensus,” and it enables the system to be secure even when some nodes operate independently.

 

The problem arises when only one node can maintain consensus and therefore make sure that the ledger remains secure. If that node goes offline or is compromised by an attacker, then the entire system can fall apart.

 

On other side, thefts and frauds are rampant on Web3. In 2021, crypto scams and theft are totally to $14 billion losses. So, security is the biggest threat in the Web3 world for BFSI segment.

 

In an article about Web 3.0, when discussing the impact of augmented reality on society, The Economist also included that “banking would be affected too” (The Economist 2011). The writer said that this technology would allow people to peer into their bank accounts without even logging in. It could also authenticate people remotely and control their finances at the same time.

 

Ending words

 

To fully understand the present banking sector, it is necessary to acknowledge that its nature has always been technology-driven since banking was first formed. As a result, all banks have also invested in new technologies to facilitate the operations and services that they offer to their customers. They have developed faster processing systems, better internet banking platforms, more reliable ATMs, and quicker payment gateways.

 

Realization should temper the urge to dismiss Web 3.0 financial services as fringe efforts that many in banking missed the potential of PayPal and Chime until they became huge competitive threats

 

The future of banking lies in Web 3.0. Someone will felt soon the impact of these technologies on the industry, especially for banks that are still rooted in their traditional business model. Web 3.0 is transforming the financial landscape and will, most likely, affect how banks operate.

ZERO To ONE

ZERO to ONE – By Peter Thiel

Recently, I again read this international bestseller after a few years. Its really a wonderful book.

As per the author, founders should ask one or more of the following seven questions related to their startup/business. If you don’t have good answers to these questions, you will run into lots of “bad luck” and your startup may fail.

1️⃣ The engineering question
       Can you create breakthrough technology instead of incremental improvements?

2️⃣ The timing question
       Is now the right time to start your particular business?

3️⃣ The Monopoly question
       Are you starting with a big share of a small market?

4️⃣ The people question
       Do you have the right team?

5️⃣ The distribution question
       Do you have a way to not just create, but deliver your product?

6️⃣ The durability question
       Will your market position be defensible 10 and 20 years into the future?

7️⃣The Secret question
      Have you identified a unique opportunity that others don’t see?

If you nail all seven, you’ll master fortune and succeed. Even getting five or six correct might work.

Tesla nailed all seven, making it the most valuable company in a short time.

What is your view? Do you have any other points to add that might be secret sauce???

Biren Parekh