Newstricky| Buy Now Pay Later is a great option for customers, as it allows them the freedom to pay their dues over the course of time and still have control over their own purchase. Different service providers have popped up over the course of time to allow these options, and even mega-companies are offering BNPL in the form of EMIs.
In such a case, the question arises whether Buy Now, Pay Later is the one for your Business. Like any other scheme, BNPL has its pitfalls and advantages. WHile BNPL is made to cater to the experience of the customers, it can still benefit the different businesses if used correctly.
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The Meaning of Buy Now, Pay later
Buy Now, Pay Later is a way to pay merchants and businesses. However, it is made carefully to help customers who cannot afford the item all at once. Rising up in contrast to credit cards, BNPL is a payment method through which merchants are paid their price in full while the customers continue to pay installments to the service provider. Most often, businesses have to pay a small fee of 2 to 8% of the transaction fees to the service providers.
Types on BNPL for Merchants
While it is commonly believed that BNPL is completely catered to the needs of the customers, in some cases it is also very helpful for the merchants. Let’s have a look at two kinds of Buy Now, Pay Later methods which are catered for each customer and a merchant. Namely: Merchant Transaction Fee Loans and Shopper Interest Loans.
Merchant Transaction Fee Loans
This is the method through which BNPL has come to become popular. The customer purchases an item, and the business gets full payment. Over the course of time, the customer pays the whole amount in installments. There is no interest rate unless the buyer fails to pay on time.
Merchants, however, have to pay up to 8% of the amount as well as the transaction fees to the service providers. This method is preferred by the customers because of its simple, customer-friendly nature.
Shopper Interest Loans
This method has been catered for businesses. The customer has to pay the amount in installments, along with some interest to the BNPL service providers. On the other hand, businesses do not have to pay anything.
While it may seem like a good option to the merchants, it does often lead to a loss of customers due to the interest.
Benefits of using BNPL
There are many benefits of using Buy Now Pay Later as a method in your business. While it may seem to be more customer-friendly, BNPL comes to cater to businesses as well.
Sales Increment
With the paced-out installments and easy-to-understand plans, BNPL is often credited with an increment in sales. Around the time of the holidays, BNPL rises in popularity due to its nature. The spread out-payments make the product affordable for the customers. More often than not, the interest rates of credit cards make people shy away from purchasing what they wish to. BNPL allows for a simple option, something which is within the control of the customer. The payment times are often balanced out close to when the paycheque would be due, making it seem better.
Competition friendly
Since many companies are employing the use of BNPL, it would be wise to employ the same for your business. There are two cases: one where your competition already employs this method, in which case your work would be as desirable as theirs. In the other case, where opposing businesses have not yet employed BNPL, you can get ahead in the race.
Customer-friendly
BNPL is a customer-friendly payment method. The cost-friendly nature reflects in its ways. This affordable solution entices the young generation, especially Gen Z and millennials. With the crippling student debt and the rising interest on credit cards, BNPL comes as a way that helps the younger generation afford what they want and need.
Unlike Credit cards and Personal loans, one which leads to difficulty due to interest rates and another which often leaves people in more debt than before, BNPL allows for a friendly way to purchase necessary items.
Since BNPL can be used for things such as furniture but also small things like clothes and grocers, it is an attractive alternative to credit cards.
Less Cart-Abandonment
More often than now, the prince tags and the inability to pay for things customers desire to lead them to abandon the cart they had filled with goodies. Sometimes, the lack of payment options discourages them to do so as well. By implementing BNPL, the Card-Abandonment has gone down by a significant percentage. People know they can afford materials which they earlier could now.
Increase in Customer Life Value (CLV)
Customer Live Value or CLV refers to the amount a single person spends in your store. Over the years, the more affordable and easy to purchase your store will be, the better it would be for your customer’s life value.
Buy Now, Pay Later risks
While there are many advantages to BNPL, it comes with its own sets of risks. Discussed down below are a few.
Frauds
BNPL is not without its own disadvantages. One of them being frauds.
The security firewall of the BNPL service provider is not always very good. Some people may get access to login credentials and use someone’s account to purchase unnecessary items, plunging customers into debt. Due to the installment plan, it might take some time for any of the parties to realize what is happening.
Businesses need to keep an eye out for unnecessary or suspicious payments by an established account. In case of this, they should contact service providers immediately.
Lack of affordability checks
BNPL does not exactly run background checks on the customers. While some people may use BNPL as a method to pay for their items, it may not always be something they can payback. In such cases, service providers charge a rate of interest, which can further make it difficult for the customer to pay back.
Furthermore, people often sign up without reading the Terms and Conditions. BNPL is a simple solution, but it has some rules to it which need to be thought about.
People with a difficult financial background will be just adding to their trouble by employing BNPL, which can in turn make merchants incur a loss.
Cross-border payment
In case someone buys an item overseas, there is a chance that the conversion rates change between one installment and another and that can cause issues for both businesses and customers. Depending on the BNPL policies, one of them will have to take over some loss. Thus, in such cases, businesses need to keep up with the policies of BNPL.
Despite many of its downfalls, BNPL is the way for better customer appeasement for businesses. More and more customers are flocking towards using the BNPL system instead of credit cards and other payment methods. By employing it in your business, you allow for a good customer base.
