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Most people think of “Buy Now, Pay Later” as a consumer purchasing tool. It is, but there’s another side too—the strategic business side. Put another way, BNPL can be a useful sales incentive to the retailers that offer it. By unlocking the ability for consumers to make purchases with terms that work for them, BNPL can boost sales, conversion, customer satisfaction and more. That said, it isn’t without its challenges.

In this article, we’ll explain what “Buy Now, Pay Later” is and how you can set up and manage it. We’ll also go over some of the advantages and challenges of offering BNPL. 

What is BNPL?

To the consumer, BNPL is an opportunity to divide the cost of their purchase into smaller payments over time. Thankfully, the retailer doesn’t need to wait for those payments to be made. The consumer end of the BNPL arrangement is made with a finance company, not the merchant itself. Merchants that engage in this type of selling get paid right away. 

The concept is simple. Merchants pay a fee to the BNPL finance company. That fee is typically 1.5% to 1.7%, but there are some BNPL providers that charge as much as 8%. That will seem steep if you look at it purely from a spend management perspective. If you view it in terms of generated sales, the remaining 92% is money you wouldn’t have without offering BNPL.

Retailers often use BNPL during the holiday shopping season to boost sales and outperform their competitors. These programs work like credit cards, with little or no interest. Some merchants offer 0% financing for a set period when customers select BNPL. The customer simply needs to pass an online credit check and they can take their purchase home.    

How to offer Buy Now, Pay Later

Setting up a BNPL program for your retail business requires a partnership with one of the many BNPL finance companies. You could float customer purchases yourself, but that can increase risk and make spend control more difficult. Particularly if you’re a smaller business without a dedicated finance department, it’s best to leave the financing side of this to the professionals who have experience with it. The following companies offer BNPL partnerships:  

Afterpay: The dominant player in the BNPL space in Australia and New Zealand, Afterpay has provided their merchant partners 27 million referrals globally. They have a customer base of 3.6 million consumers, with 10% of them using Afterpay more than sixty times per year. On average, they approve 90% of consumer applicants.  

Affirm: Major retailers like Walmart and Peloton have chosen Affirm for BNPL because they have a wide selection of consumer payment term lengths and superior technology backing it. They boast “full omni-channel solutions” across e-commerce, stores, and telesales, with a 20% repeat purchase rate. Their network connects 11.2 million consumer shoppers.   

Klarna: The simplicity of Klarna’s “Pay in 4” consumer BNPL program has attracted well-known brand names like Sephora, Timberland, and Abercrombie & Fitch. Klarna offers free setup for new merchant partners and integrates seamlessly into checkout for Shopify, WooCommerce, Salesforce Commercial Cloud, and Magento. 

PayPal Credit: If you’re looking for a trusted payment processor with a massive global network, PayPal Credit should be at the top of your list for a BNPL partner. Their consumer payment programs include “no interest for six months” on purchases over $99 and options for minimum monthly payments with interest.  

Zip (Previously QuadPay): Easy integration with your shopping cart is one of the factors that should go into your BNPL partner decision. That’s Zip’s greatest strength. They seamlessly connect with most existing e-commerce platforms. For your customers, Zip’s BNPL program offers interest-free installment plans with no hard credit check. 

Thankfully, business owners don’t need to be technological gurus to set up BNPL programs. The vendors listed above handle all of that for you. Some are more expensive than others, but tapping into a larger network of consumer prospects can offset that cost. Keep in mind that every sale made with BNPL is a sale that may not have happened without it. 

Each of these platforms makes the claim that offering BNPL can increase conversion rates by as much as 20%. The appeal of flexible payment options also increases the possibility of getting repeat business. BNPL is a tool to increase your customer base, thus increasing revenue, regardless of the cost. Weigh that carefully when you choose your BNPL partner.     

Advantages of offering BNPL 

Every action in business has a plus side and a minus side. Successful business owners are the individuals who examine both and make their decisions based on an ROI mentality. With BNPL, there are several advantages, but there are also some challenges that need to be overcome. These are some of the advantages:  

Increased conversion rate: One of the key obstacles to conversion is price. Consumers may like your product, but they won’t buy it if the price overwhelms them. BNPL eases that pain, giving them the option of spreading the cost out over time. Providing this option has been known to increase conversion rates by as much as 20%. 

Larger prospect pools: Connecting with an established BNPL partner does more than just provide another payment option to your customers. It exposes your business to a larger network of prospects who may have never heard of you before. BNPL providers like PayPal and Affirm have millions of customers. 

Flexible payments for large purchases: The higher the price, the more difficult it is to sell the product. The close rate on big ticket items goes up with a flexible payment option. That’s why most furniture and mattress stores offer BNPL. It’s easier to spend thousands of dollars when consumers know they can space the payments out.

Higher average sales: Consumers will spend more when they don’t need to come up with the full amount of the purchase on the spot, a fact that credit card companies learned decades ago. The difference with BNPL is interest rates. Some of these programs offer zero percent interest which can be a huge incentive for consumers. 

Better customer experience: Shopping without the pressure of making a payment at the point of purchase makes the experience more fulfilling for the customer. Cost concerns that are present during a normal sales process dissipate and customers can focus on their actual needs. Salespeople don’t need to overcome price objections. 

Disadvantages of offering BNPL

When used properly, BNPL can change the financial strength of your company. Increased revenue will do that for you. That doesn’t mean that this type of payment system is without challenges. There are several. Knowing what they are and planning to overcome them will help you reap the full benefits of BNPL. Be prepared for the following:   

High merchant fees: BNPL merchant fees may be higher than credit card processing fees, depending on which BNPL provider you choose to partner up with. Fees should factor into your decision, but so should the size of the vendor network.  

Integration problems: The platforms listed above have good integration capabilities with established e-commerce sites like Shopify. If your shopping cart is custom built, you may have problems with the integration. 

Business accreditation: There are some requirements for your company to be eligible to offer BNPL. For example, it’s not allowed for gaming and tobacco sales. BNPL partners may also have their own requirements, like revenue minimums and creditworthiness.

Confusing terms and conditions: Read the fine print on the terms and conditions of the merchant agreement carefully before agreeing to it. BNPL is still evolving as a payment method, so some of the contract language may be confusing and change regularly. 

Customer shopping addictions: BNPL can create financial unmanageability for your customers. It may not seem like a bad thing for the business when customers overspend, but it is. Cash-strapped and resentful customers don’t come back.             

BNPL is not a new concept. They were preceded by “layaway programs” that helped consumers buy items like expensive furniture and electronics they otherwise may not have been able to afford upfront. Technology has brought layaway programs to another level, evolving them into what we know as BNPL today. Just be sure to analyze the challenges of BNPL providers before utilizing them. 

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What’s the catch with Buy Now, Pay Later?

Merchants pay a fee to the BNPL finance company. That fee is typically 1.5% to 1.7%, but there are some BNPL providers that charge as much as 8%.

Why is Buy Now, Pay Later so popular?

Shopping without the pressure of making a payment at the point of purchase makes the experience more fulfilling for the customer. Cost concerns that are present during a normal sales process dissipate and customers can focus on their actual needs.

What companies offer Buy Now, Pay Later?

There are several companies that offer BNPL partnership programs for merchants. Some of the larger ones are Afterpay, Affirm, Klarna, PayPal Credit, and Zip.  

Is Buy Now, Pay Later a loan?

Yes. BNPL is a loan. The merchant gets paid right away, but the consumer is entering into an agreement to pay back that money to the BNPL provider, with or without interest. That classifies this payment method as a loan. 

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