BNPL (Buy Now Pay Later) is a relatively new payment option picking up steam. Banks and other lending institutions have been offering BNPL options for a while now, but the idea has only started catching the attention of online merchants in the last couple of years.
In a nutshell, BNPL allows customers to purchase items or services and spread the payments over a period determined by the BNPL service provider.
This blog post will explain how BNPL works, how BNPL companies make money, and the benefits of introducing BNPL for your customers. Stick around to the end to find three common myths that we’ve debunked about BNPL.
What Is Buy Now Pay Later?
Buy Now Pay Later (also called an installment loan) is a type of loan that allows you to make a purchase and receive the goods and product immediately but payments are made over time.
With BNPL, the merchant will be paid the total price of the item (minus the transaction fee) by the provider while the customer pays for the item in installments.
How Does BNPL Work?
Every BNPL service provider has its own unique terms and conditions. But generally speaking, this is how BNPL payments work:
- When a customer reaches checkout and chooses BNPL as a payment option, they will be asked to fill in a short application that will ask for their name, address, date of birth, and phone number.
- If the transaction is approved, the customer will then make a payment for the first installment, usually 25% of the total price.
- The remaining amount can then be paid in installments, either biweekly or monthly, until the total cost is paid.
- A customer can choose the form of payment they use, whether it be a debit or credit card.
How Do Buy Now Pay Later Companies Make Money?
BNPL companies make money from merchants and consumers.
Merchants: BNPL providers get a percentage (2 to 8%) of each sale a merchant makes using their service. Some providers may charge up to 30 cents per transaction.
Customers: Some BNPL providers charge interest as part of the “loan” amount and late fees when the customer does not make the full installment on time.
What Are the Benefits of Buy Now Pay Later for Your Customers?
BNPL payments can benefit your customers in the following ways:
- BNPL payments allow your customers to purchase items they want, even if they cannot afford to pay in full at that moment.
- With BNPL payments, your customers can upgrade their purchases to better items because they can spread payments out over time.
- BNPL offers your customers flexible payment schedules.
- Your customers won’t have to worry about paying interest for their purchases when using BNPL.
3 Common Myths About Buy Now Pay Later
There are a lot of misconceptions about BNPL. Here are the three most common ones:
1. Myth: BNPL Is Only Popular with Millennials and Gen Z
FACT: As of July 2020 one research group found that up to 40% of BNPL consumers were in the 35-44 age segment, with an uptick in BNPL also seen among Gen X and Baby Boomers.
Although the younger generation was the first to adopt BNPL early on, older consumers are also taking advantage of this flexible payment option. Given that higher price point items are often purchased by older consumers, BNPL will undoubtedly continue to gain traction among those 40 and up.
2. Myth: BNPL Has Additional Fees
FACT: The BNPL service provider only charges the merchant the agreed-upon transaction fees. The merchant will not be charged again. When working with some BNPL providers, such as Gratify, customers do not incur extra charges or hidden fees. They are only charged for the price of the item.
Be aware though, some BNPL providers do charge the customer interest and late fees.
3. Myth: BNPL Encourages Debt
FACT: BNPL is a budgeting tool that can help individuals steer clear of debt. If a total purchase is made with a credit card, high interest fees can potentially lead to debt. But when a consumer is able to make manageable scheduled payments, they can keep their finances in check and pay only what the item costs, without the high interest fees.
When a customer signs up for BNPL it does not impact their credit score. If your customers link their debit card to BNPL, the money will be automatically deducted from their account, which means payments are made on time and the customer will not be penalized with interest charges.
While offering BNPL can be daunting, when you strip it down, what once was old is new again. BNPL is a modern take on laybuy, except your consumers get their goods today, and pay for them off over time.
When used correctly it can increase your average sale size, reduce abandoned carts and lost sales and improve consumer satisfaction. From a consumer’s stand point, BNPL offers choice, the ability to get what they want today at a price that is accessible and manage their cash flow.
How Can Payfirma Help?
Payfirma has partnered with Gratify to help you set up a BNPL payment system that makes it easy for your customers to pay for the products and services they want. If you have any questions on how we can make this possible for your business, please contact us at [email protected] or call our toll-free line at 1-800-957-0534.