The Rise of Buy Now, Pay Later
17th June 2021

There is a new player emerging among the ever-growing list of online payment solutions: Buy Now, Pay Later (BNPL). But what does it mean and how does it work? Read on to find out how it can benefit your business.

The rise of Buy Now Pay Later.

There is a new player emerging among the ever-growing list of online payment solutions: Buy Now, Pay Later (BNPL). Whether it is Klarna, Afterpay, or Laybuy, the goal of these payment services is the same: customers get their products right away without having to pay the whole amount upfront.

What is Buy Now, Pay Later?

But how does it work? BNPL systems do exactly what they say: they allow customers to purchase something while delaying payment until a later date. BNPL platforms partner with merchants and traditional payment providers to provide the merchants customers with the option of upfront credit which can be paid later. This is a deferred payment in full or by splitting the payment across multiple fixed instalments without any interest agreed upfront and built into the repayment plan.

What are the advantages of BNPL?

For customers there are various advantages of using the BNPL systems, such as:

  • Flexibility – allows consumers to budget their spending, giving them more time to pay off larger purchases
  • Low interest – most BNPL companies, including AfterPay, QuadPay, Sezzle, offer interest free plans, whilst Klarna is interest free if you pay on time and in full within 6 months. However, some like Affirm charge interest, which can be as high as 30%
  • Easy sign-up – signing up to a BNPL scheme tends to be simpler and quicker than getting a credit card

It is not just the customer who benefits though. Merchants who offer BNPL as a solution see:

  • Increased conversion and lower bounce rate – in the UK last year, online shoppers abandoned their shopping cart 44% of the time if no BNPL solution was offered
  • Increased ATV (Average Transaction Value) – consumers are likely to add more goods to their basket if they see the option of deferred payments
  • Low risk of chargebacks – the BNPL provider pays the merchant the funds

As Charlie Youakim, the CEO and Co-Founder of Sezzle, said: “With Buy Now, Pay Later, customers are able to make purchases without incurring the fees and interest that credit cards bring”.

What are the drawbacks?

Despite the benefits, there is always a need for caution.

Customers need to make sure they are not lulled into any financial holes just because BNPL platforms allow accounts to be created quickly and easily. Many customers are not aware of the fact that they are taking on debt, and their credit score can and will be affected with a missed payment. Compared to traditional payment methods, BNPL systems incur higher fees from banks and card schemes, usually ranging from 2-8% of the amount purchased.

Merchants need to find the balance between payment methods and user experience by constantly A/B testing different solutions which may draw in different demographics dependant on the BNPL’s active customer base.

Future of BNPL:

The COVID-19 pandemic has given BNPL solutions an opportunity never seen before, as recession worries have made people receptive to entering short-term payment plans that fit their budget.

The U.K. market has increased online sales from 18% at the start of the pandemic to over 30% as the country emerged from the national lockdown. In the last fiscal year, Afterpay reported growing its active user base to 9.9 million customers, up from 4.6 million from June 2019, whilst Afterpay expanded its active merchant base by over 22,000 users in one year.

Data suggests that BNPL transactions in the UK will grow by 29% year-on-year with this solution on course to double its market share to 10% by 2024, with overall BNPL spending in rising from £9.6 billion in 2020 to £26.4 billion in 2024.

As shown above, BNPL products are increasing in popularity, helped in part by the pandemic and a change in consumer behaviours, and are here to stay. So if you do not currently offer your merchants with a BNPL solution then you could be missing out on numerous transactions. If this is you, please contact one of our experts, via our website, who will gladly assist you.

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