As businesses are increasingly looking for ways to offer customers more flexible payment options, Buy Now, Pay Later (BNPL) platforms have become increasingly popular. BNPL platforms allow shoppers to purchase items upfront but pay for them in installments over a period of time. Making it easier for shoppers to make bigger purchases!
This article explores the pros and cons of using BNPL platforms for businesses, and whether it is the right choice for your business.
What is BNPL (Buy Now, Pay Later)?
Buy Now, Pay Later (BNPL) is a form of purchase financing that gives consumers the option to buy goods or services now and make payments over time. BNPL is a convenient and flexible payment option, as it allows customers to make purchases without having to pay for them all at once.
This makes it easier for customers to make their purchases. For the business, it is just as straightforward – they receive the full amount for the item minus any fees, much like with credit card payments. The BNPL service provider takes care of all the hard stuff, such as collecting payments and insurance policies, leaving the business to focus on growing.
This type of payment plan can be especially helpful for people who don’t have the funds to make an immediate purchase but can pay over time.
BNPL is an increasingly popular payment option in both the physical and online retail markets. The payment option is offered by many major retailers and payment platforms, including Afterpay, Klarna, and Laybuy.
How Do BNPL Platforms Work?
While not all Buy Now, Pay Later platforms are the same, Afterpay is only designed for four-step installments, whereas Klarna offers the option of six-month payment plans along with the capability of being able to return any unwanted items and only pay for what you keep within a 30-day period.
Although there may be slight variations between the different Buy Now, Pay Later platforms, certain things are applicable to them all. When you’re going through the checkout process, you can select these services as a payment option just like you would a credit card, PayPal, or other payment methods.
Additionally, you can choose to pay with a check or through a bank transfer, and payments can be taken from your debit card, bank account, or credit card on an automated basis.
What is the process for making these things work? Generally, it requires a few straightforward steps
- A customer makes a one-time purchase on an e-commerce website and chooses the Buy Now, Pay Later method as their payment form.
- They are then led to the Buy Now, Pay Later platform website or app to either create a new account or log in to their existing one.
- The customer will then be able to accept the repayment terms, which can differ from bi-weekly to monthly and is determined by the platform.
- After approval, the customer will make a downpayment for the purchase and will be informed almost immediately if they qualify for the BNPL platforms.
- The customer can then pay off the rest of the payment amount in interest-free installments.
What Are the Advantages of BNPL Platforms for Your E-commerce Business?
Having the ability to offer a BNPL on your e-commerce store can be a great way to draw in customers. Let’s look at the advantages of this.
Delivering on convenience
With BNPL platforms, you’re providing customers with an effortless and personalized payment experience. In 2023, when people’s concentration levels are lower than ever. A smooth checkout process can be the decisive factor in your success. Additionally, you would be granting your customers the liberty and autonomy to choose their payment method.
Reaching out to more customers
It appears that Generation Z is taking on the “Buy Now, Pay Later” mentality and making it a part of their lifestyle. Even more surprisingly, 26% of millennials and 11% of Gen-Zers have utilized BNPL platforms for their online shopping needs without the need for a credit card.
Furthermore, BNPL platforms have their own unique branding and advertising campaigns (Stripe is a great example of this). This can really help increase your business’s visibility and help you reach potential customers.
Improving your conversions
Statistics don’t lie! A new analysis shows that providing a Buy Now, Pay Later platform to shoppers can amplify e-commerce conversion rates by 20-30%. Consumers of all types are increasingly adopting this payment solution. Also it is projected that revenues from Buy Now, Pay Later will double by the year 2024.
Increasing your average order value
Buy Now, Pay Later platforms are an excellent way for customers to invest in more expensive items without feeling overburdened. These platforms allow people to make payments in smaller installments, which in return makes them more likely to make a purchase. This is beneficial to both your business and the average order value, regardless of the cost of the goods you are selling.
If you offer higher-priced items, customers will be more likely to purchase them due to the flexibility of BNPL. If you are selling less expensive items, your chances of customers buying multiple items will increase. See, it’s a great situation for everyone!
The Dark Side of BNPL
Are there any drawbacks to utilizing BNPL services? Could it be that we are only apprehensive about technology progressing? Let’s examine this further.
Although BNPL platforms strive to be secure, there are risks associated with a customer sharing personal information with them. One of which is the potential for customer data to be unknowingly supplied to a third-party provider. While using these platforms, you can put your customer’s privacy at risk. For ecample; the data can be used to track behaviors that could lead to more profits.
This lack of transparency can be dangerous to customers and can result in a loss of loyalty for the business. To ensure the safety of both your customers and your business, we suggest researching fraud prevention solutions. Such as conducting a manual review of your security protocols and installing fraud prevention software.
Hidden charges and deferred interest
The main attraction of Buy Now, Pay Later services is that you don’t have to pay interest to borrow something. However, there may be a downside. Some BNPL platforms have a “deferred interest plan,” which means that interest charges may be postponed for a certain period of time.
If the customer fails to pay off their installment in the allotted time, they may be charged interest on the entire purchase amount, not just on the down payment.
For example, if you bought something for $100 with a deferred interest plan, you would be charged interest on the total of $100, even if you paid a portion of it down in advance. That could really put a strain on your finances.
Thankfully, if you take the time to read the agreements provided by BNPL platforms, you should be able to spot terms and conditions like “no interest if paid in full within six months,” which indicate the potential for deferred interest charges.
Fewer regulations and less protection for customers
The increasing popularity of Buy Now, Pay Later services has led to a lack of regulations, leaving customers with fewer safeguards in the event of any issues.
Businesses that employ BNPL can only go so far in terms of help, making it difficult to solve disagreements and return purchases. In certain cases, it may be simpler to just use a credit card.
3 Popular BNPL Platform Examples
Buy Now Pay Later (BNPL) platforms allows customers to make a purchase without suffering from high-interest rates. Here are three of the most popular BNPL platforms currently available:
Affirm’s bi-weekly interest-free payments with no high stakes make them an ideal option for everyday purchases. They also have revenue-enhancing features for businesses that opt for their platform. Adaptive Checkout provides customers with flexible and appropriate payment options in one view for a smooth experience.
With Afterpay, customers can extend their repayment period to more than four weeks. ALso not incur any fees when payments are made on time. The Afterpay app has advanced features to protect against fraud and secure data and payments. They provide both shoppers and business owners with various features to benefit from.
Klarna is a Swedish BNPL platform that has been in operation since 2005. It allows customers to purchase products online and pay for them in 30 days with no interest or fees. Customers can also opt to pay in three equal installments over the course of 30 days with no interest or fees. Additionally, Klarna offers a variety of additional services such as purchase protection, price protection, and return protection.
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