Consumers today have come to expect a variety of choices when it comes to payment methods. And as a business owner, it falls under your responsibility to provide alternative payment options that are easy and convenient. One of those options is the Buy Now Pay Later (BNPL) method.
As the name suggests, Buy Now Pay Later (BNPL) is a payment plan that allows your customers to pay for your products and services at a later date, or in installments.
BNPL payments are growing in popularity, with an estimated 56% of all American shoppers using this service. This means that BNPL payment plans are something you should consider integrating into your business if you want to keep up with your competitors.
So then, what exactly is Buy Now Pay Later? How does it work? And how could it be beneficial to your business?
What Is Buy Now Pay Later?
Buy Now Pay Later is a type of short-term financing that allows customers to pay for their purchases in installments instead of the whole sum upfront. Basically, customers delay payments on their credit card purchases.
The first installment is made at the point of sale, while the remaining payments are made later in predetermined installments until the purchase is paid for in full. The remaining payment installments are billed to the customer’s credit card.
BNPL typically does not charge interest. However, if a customer does not pay for their purchase in the agreed-upon period, they will be charged a late payment fee.
Most BNPL plans are meant for online shopping, but some brick-and-mortar stores can also use a BNPL plan.
How Do Buy Now Pay Later Payments Work?
The terms and conditions of BNPL may vary between companies. This is the basic breakdown of how BNPL payments work:
- After a customer reaches checkout and chooses BNPL as a payment method, they will be asked to fill in a short application that will ask for their name, address, date of birth, phone number and payment method. Then, the provider for BNPL payments will perform a soft credit check and either approve or deny the application.
- If the customer is approved, they will make their first installment, which is usually 25% of the total cost of their purchase.
- The rest of the payments are then made either biweekly or monthly. Most companies use the pay in 4 installments method. However, the terms and conditions you will use for BNLP payments are up to your provider. Customers aren’t charged interest for BNPL payments, but they can be charged for late fees.
- Customers can then pay for their purchases using a credit card, bank transfer or check.
What are the Top 6 Advantages of Buy Now Pay Later Payments?
There are several reasons why you should consider adding BNPL payment plans to your business. These reasons include:
1. Higher Conversion Rates for Your Business
As a business owner, you’ve probably had an experience with customers that browse your products, fill their cart with items and leave the website without completing the transaction.
BNPL payments might increase your conversion rate in this case. A survey showed that 1 out of 5 online shoppers had abandoned their carts because they thought the checkout process was too long or complicated.
This is because BNPL payment plans can help your customers purchase what they want without putting them in a challenging financial position.
2. Attracts New Customers
Providing BNPL as a payment option can help you attract customers who previously could not purchase your products due to financial constraints.
When a purchase is split up into installments and can be paid off within weeks or months, most customers will feel that they can afford the products they want.
BNPL payments can help you widen your audience, especially millennials who have the fastest-growing debt load and are looking for alternative payment methods that will not be financially challenging.
3. Builds Customer Loyalty
BNPL offers your customers flexibility and convenience when making their purchases. It gives them a chance to make a purchase that won’t be a financial strain.
This, in turn, builds customer loyalty. Your customers will know when they visit your store that they can purchase whatever they want, even if they can’t afford it at the moment. In addition, the fact that BNPL payments do not add interest to their purchases is an attractive package for most customers, leading them to come to your store more often.
4. Gives Your Business a Competitive Advantage
Buy Now Pay Later payment plans are becoming a popular payment method for many businesses. Business Insider reports that by 2025, BNLP payments are estimated to reach $680 billion in transaction volume.
If you want a competitive advantage, it is wise to consider integrating it into your business to not be behind on all the innovative payment methods available.
5. Increases Customer Lifetime Value (CLV)
Buy Now Pay Later increases customer loyalty, which increases Customer Lifetime Value (CLV). Customer Lifetime Value is the amount of money a customer is expected to spend on your business during their lifetime.
BNPL helps you build trust with your customers. They know they can count on you to provide a payment plan that does not put a financial burden on them. When you offer an affordable payment plan to your customers, they are more likely to come back and make more (and larger) purchases, increasing their lifetime value.
6. BNPL Increases Your Average Order Value (AOV)
If you want to understand the purchasing habits of your customers, then you can use a measuring metric called The Average Order Value (AOV). The Average Order Value is the average amount a customer spends for every purchase during a specific period. If your business has a high AOV, you can earn more revenue from the same number of customers.
Klarna reported that retail stores experienced a 60% increase in AOV after implementing BNPL. This is because customers have a higher purchasing power with this payment method. In addition, they can afford more products because they are paying for them in installments.
Every ecommerce business needs to stay on top of its competitors to stay relevant and make sales. Buy Now Pay Later payment plans are an excellent new payment method you can integrate into your business.
Not only do they increase your sales, but they help you provide your customers with a new and convenient payment method.
How Can Payfirma Help?
Payfirma offers Buy Now Pay Later through third-party partner Gratify. Gratify is an integrated BNPL fintech company providing innovative payment solutions to payment facilitators, payment service providers (PSPs), merchants and consumers.