Did you know that over 2 billion people shop online?
This stat translates into billions of transactions every month. With the retail sector showing no signs of slowing down soon, retailers are looking at new ways to attract customers.
One of the best ways to attract customers is to offer more payment options, the most notable of which being buy now pay later (BNPL) services. This service differs from point-of-sale financing and offers a few benefits for both customers and retailers.
Interested in learning more about buy now pay later services? You’re in the right place. Here’s everything you need to know.
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What Are Buy Now Pay Later Services?
Buy now pay later (BNPL) is a personal financing system that lets customers make purchases and pay for them over time in equal payments without interest. This payment method is increasingly popular for online shopping as the approval process is almost instant.
This service does not just hand over credit to consumers but binds them to a fixed repayment schedule.
For example, if you were to purchase something for $100 using the BNPL process, you would pay a deposit of $20 upfront, followed by four more (monthly) payments.
These services are generally interest-free, but the penalties and interest charged on late or missed payments are much higher than most other forms of credit.
How Buy Now Pay Later Works
Buy now pay later services work just as the name suggests. Customers can purchase one or multiple items they want and opt to pay later at the checkout. There is an approval process, but it usually only takes a few seconds to complete.
Once the customer is approved, they will pay a small down payment on the total cost of the goods they wish to buy. This upfront cost usually is around 20% to 25% of the total. The remaining funds get split up into simple, interest-free installments.
BNPL services differ from paying for items with a credit card, as credit cards will allow you to pay a minimum percentage and carry over the debt, and BNPL services come with a fixed repayment schedule.
If the customer is late with a payment, this can result in hefty penalties and damage to their credit score. These kinds of services are similar to short, unsecured personal loans.
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Benefits of Buy Now Pay Later Payment Options
Buy now pay later financing benefits both customers and retailers. Here are some of the most notable ones.
For Customers
Buy now pay later financing aims to make the average consumer’s life easier. Here are some benefits of buy now pay later financing for consumers.
Lower Interest Rates
Unlike credit cards and personal loans, BNPL financing is almost always interest-free. If you stick to your payment plan, it can be a great way to finance your purchase over a few months.
Seamless Purchase Experience
Buy now pay later financing is as easy as clicking a button. The screening and approval process is almost instant, making it an all-around seamless experience.
For Retailers
Buy now pay later financing is an excellent way for small businesses to attract new customers. Here are some of the benefits of offering this payment option at checkout.
Money Upfront
Buy now pay later financing means you get the entire sum of the purchase instantly as soon as the customer agrees to the terms. This aspect is due to the underlying credit that the third party finances, and it can help strengthen your cash flow and even lead to customers making larger purchases with you.
Repeat Customers
Convenience is critical, and BNPL is becoming more of a deciding factor for consumers when deciding to make a purchase. Offering this payment solution can help start the beginning of a strong, lifetime customer base for your business.
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BNPL vs. Point of Sale Financing
While BNPL is point-of-sale financing, it does not work the same way as traditional hire purchases. A traditional hire purchase is a credit agreement a customer makes with the retailer, which means the customer’s purchase cost will be calculated with interest before a fixed monthly payment is established.
The customer will then make this payment weekly or monthly to the retailer until the end of the credit agreement. These tend to be 12, 18, or 24 months long. The clear advantage goes to buy now pay later financing since you as the retailer will get the entire purchase amount instantly.
This process is possible because a third-party financer agrees directly with the customer. In this way, BNPL financing is more like an instant personal loan you qualify for at checkout. Every payment you make will go directly to the financer, not the retailer.
It’s worth noting that some retailers like Amazon and Apple offer buy now, pay later services themselves. This means that the payment plan and credit arrangement are made directly with the customer without a third-party financer. In this case, each payment will go to the retailer.
Include BNPL Payment Options in Your Online Store
Buy now, pay later services allow retailers to collect full payment upfront while still offering a financing solution to your customers. This can help improve your cash flow and increase your total sales while encouraging customers to return to your store.
Considering all this makes offering these kinds of merchant transaction services a no-brainer.
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