This is how BNPL works

If someone spontaneously asked you “How long does it take to get a loan?”, what would you answer? Days? Weeks? Maybe even months? Users of Credi2 will take a chance and bet on a few minutes. And they will win the bet.

The loan record of the Austrian “Buy Now, Pay Later” (BNPL) specialist Credi2 is 5:46 minutes. In less than 6 minutes you can get an online loan including video call, customer identification, and contract conclusion – this is not only record-breaking but also faster than most delivery services on the market.

shopping trend

With classic BNPL products such as purchase on account or installment purchase, the process is even faster. The transaction happens in real-time directly in the online shop. Thanks to clever algorithms, customers can complete the purchase on account or credit directly in the online shop without delay. Subscriptions for smartphones or bicycles are also taken out immediately.

"As user-friendly as possible"
“Customers should put as little effort as possible: as little data as possible, as few clicks as possible,” says Daniel Strieder, CEO and co-founder of Viennese fintech Credi2, which works with international partners such as Apple, Raiffeisen Bank International (RBI), Volkswagen Bank, and services such as cashpresso or FINANCE A BIKE, and has grown into one of Europe’s leading BNPL scale-ups.

Credi2 specializes in optimizing the digital application process for BNPL offers. The company manages the entire process from A to Z: from the first data entry through identity verification, credit scoring, risk assessment to the successful conclusion of a contract. While purchases in online shops are made as simple and quick as possible for customers, complex processes take place in the background.

“In the frontend, everything has to be as simple and user-friendly as possible. The moment a user wants to buy a bike or a notebook, we are there with the right BNPL services,” says Strieder. “But you have to differentiate in detail: While the dealer offers a deferred payment that is pre-financed, only the bank offers a real loan. So it always depends on what our partners want. We have the necessary knowledge and technology to build and implement such products.”

1. Purchase on account
Most banks, financial institutions, and other lenders accept payments on account. For the customer, this means paying an amount of money towards clearing a debt. Purchase on account is actually a payment method that has been around for many decades and got big through mail-order catalogs. In the digital age, this method is getting a boost and can be processed within minutes. It is suitable for amounts up to €3,000 and can be offered by online retailers but also at the point of sale directly in the store – like all BNPL options. In that case, the retailer benefits from the fact that the customer can conclude the contract directly in the shop. According to the German tax law for low-value assets (GwG), no extensive legitimation of the user is necessary for this financing solution, which is why the completion takes place at the same moment.


2. Installment purchase
With installment purchase, the purchase amount is split into several smaller amounts which the customer then pays off over time (e.g. several weeks or months). As a rule, the installment purchase is particularly suitable for higher-value goods such as furniture, electrical appliances, or entertainment electronics. Even with installment purchases, no complex user identification is necessary, which enables transactions to take place in just a few moments, similar to purchases on account.

3. Subscriptions
The “subscription lifestyle” encompasses more and more areas of our increasingly digital life. The model is already familiar from car leasing and monthly rentals but it can be applied to many other areas such as smartphones or bicycles. Many customers nowadays see considerable advantages in renting. 

With a smartphone subscription, for example, customers have the advantage of not paying the full purchase price all at once but investing a small amount each month. Later on, when the latest model comes on the market next year they can return the old device and get the new model as a subscription.

Even though in the background the customer is given a monthly subscription limit within which he or she can subscribe to products, the perk of subscription models is that deals can be completed in a very short time.

4. Quick loan
BNPL in its most extensive form represents consumer loans or framework loans. Here should also be made a distinction depending on the application. Revolving credit lines are suitable for recurring customers, while the installment loan is intended for one-time customers who want to finance a solar system or a long trip, for example.

Even if there are corresponding information obligations for these banking products (you have to show a sample invoice for the loan and make the bank partner transparent) and lots of data has to be requested from customers, this does not mean that quick transactions are not possible.

“The fastest application we’ve ever made for credit-based products was through in 5:46 minutes,” says Strieder. This works because these application processes can also be fully automated. “With our application routes, no manual processes are running in the background, everything is fully automated.” Thanks to new ID procedures, quick online loans will be even faster in the future since AI-based video calls for identifying are becoming more and more efficient. These technologies will soon find their way into the BNPL business and make financing solutions even faster and, hopefully, more secure.