What Is Buy Now, Pay Later (BNPL)?
Buy Now, Pay Later online shopping is a payment method that allows customers to buy a product and then pay for it in multiple installments over a determined schedule. This system of ecommerce installment payments provides customers with more flexibility while giving them an option to buy a product they might otherwise have decided against.
In order to implement and manage a BNPL strategy, ecommerce brands typically work with a payment partner. This payment partner has the expertise and systems in place to handle working with a customer for future payments. In a BNPL model, ecommerce store owners receive the payment at the time of purchase and the payment partner takes on the risk from the customer.
The Importance of BNPL in Ecommerce:
Implementing BNPL is a step in the right direction for brands that want to align their business model with consumer trends.
People want payment flexibility—they want to pay the way that works for them. With buy now, pay later, sellers can convert buyers who don’t have a card or who prefer not to use their card.
Ecommerce businesses that don’t offer this type of payment flexibility might miss out on sales opportunities. Buyers will turn to competitors who enable easy, flexible payments.
Understanding How BNPL Works for Your Customers
When a customer navigates to the checkout page to make a purchase, they can choose a traditional online payment option such as credit, debit, or PayPal. Or, they can choose the BNPL option. Once they click the BNPL option, they’ll be asked to fill out a short credit application. Usually, they’ll need to enter personal information, such as their name, social security number, and their payment method.
Next, the BNPL provider runs a soft credit check that does not impact their credit.Within seconds, they are approved or denied. What’s appealing about the buy now, pay later option for many consumers is that even customers with bad credit can be approved. Also, as long as they pay their installments on time, they can avoid interest or fees. On the other hand, customers who don’t pay on time can end up paying more for their purchases through interest and late fees.
How the buy now, pay later solution is set up depends on the provider you work with. Some of the most common payment models include the following:
Pay in four installments: The customer pays in four equal installments. If they pay on time, they won’t accrue any interest.
Pay in the short term with multiple installments, with no interest but with a price difference: For example, a customer could be offered the option to pay in one payment of $97, or three monthly payments of $37 each. The latter totals $111, meaning that the customer is paying an additional flat fee ($14) for the option to spread out their purchase, passing some or all of the vendor's additional overhead to the consumer.
Pay in the intermediate term, with multiple installments, with no price difference but with interest accruing: The specific details can vary significantly from retailer to retailer, but generally speaking, the time frame is three years or less.
Benefits to Retailers Using BNPL:
Implementing a BNPL strategy can significantly benefit your ecommerce business. Here's why:
Increased Sales: By offering flexible payment options, you can encourage customers to make purchases they might have hesitated on due to immediate financial constraints. This can lead to increased sales and average order values.
Customer Attraction and Retention: BNPL can make your business more attractive to potential customers, particularly younger demographics like Millennials and Gen Z who are looking for flexible, non-traditional credit options. It can also increase customer loyalty as customers appreciate the flexibility and convenience.
Improved Cash Flow: With BNPL, you receive payment at the point of sale, improving your business's cash flow. The BNPL service provider handles the risk of customer default or non-payment.
Decreased Cart Abandonment: Offering BNPL options at checkout can reduce cart abandonment rates. Many customers abandon their carts due to a lack of satisfactory payment options, and BNPL can address this issue.
Enhanced Customer Experience: Offering BNPL can improve the overall customer experience. It allows customers to manage their finances more effectively and purchase items they desire without having to pay the full cost upfront.
The Future of BNPL:
The BNPL market is expected to grow at a compound annual growth rate of over 24% from 2023 to 2030. As more consumers begin using buy now, pay later options routinely, they’re going to expect BNPL as a standard checkout feature.
It’s also becoming a fast staple for younger generations. Gen Z already uses BNPL for small, everyday purchases like clothing and groceries. And even older generations are using it for larger purchases like furniture.
Implementing BNPL now can help your ecommerce brand win over customers, increase sales, and establish your business as a customer-centric brand.
