"Buy Now, Pay Later" (BNPL) is an alternative payment method that has revolutionized ecommerce.
It enables consumers to make purchases they couldn’t otherwise make, helping businesses increase sales and appeal to a wider market.
But how important is buy now, pay later for businesses today?
Are consumers still opting for it over more traditional payment options like credit and debit card sales? What about the future — will Gen Z and Gen Alpha be just as interested in BNPL as Millennials have been?
What do ecommerce businesses need to know before implementing this financing option at checkout?
Let’s take a look — this guide dives into the impact of BNPL for ecommerce businesses.
Buy Now, Pay Later online shopping is a payment method that allows customers to buy a product and then pay for it in multiple installments over a determined schedule. This system of ecommerce installment payments provides customers with more flexibility while giving them an option to buy a product they might otherwise have decided against.
In order to implement and manage a BNPL strategy, ecommerce brands typically work with a payment partner. This payment partner has the expertise and systems in place to handle working with a customer for future payments. In a BNPL model, ecommerce store owners receive the payment at the time of purchase and the payment partner takes on the risk from the customer.
Implementing BNPL is a step in the right direction for brands that want to align their business model with consumer trends.
People want payment flexibility—they want to pay the way that works for them. With buy now, pay later, sellers can convert buyers who don’t have a card or who prefer not to use their card.
Ecommerce businesses that don’t offer this type of payment flexibility might miss out on sales opportunities. Buyers will turn to competitors who enable easy, flexible payments.
When a customer navigates to the checkout page to make a purchase, they can choose a traditional online payment option such as credit, debit, or PayPal. Or, they can choose the BNPL option.
Once they click the BNPL option, they’ll be asked to fill out a short credit application. Usually, they’ll need to enter personal information, such as their name, social security number, and their payment method.
Next, the BNPL provider runs a soft credit check that does not impact their credit.
Within seconds, they are approved or denied. What’s appealing about the buy now, pay later option for many consumers is that even customers with bad credit can be approved. Also, as long as they pay their installments on time, they can avoid interest or fees.
On the other hand, customers who don’t pay on time can end up paying more for their purchases through interest and late fees.
How the buy now, pay later solution is set up depends on the provider you work with. Some of the most common payment models include the following:
Pay in the intermediate term, with multiple installments, with no price difference but with interest accruing: The specific details can vary significantly from retailer to retailer, but generally speaking, the time frame is three years or less.
Implementing a BNPL strategy can significantly benefit your ecommerce business. Here's why:
Consumers prefer BNPL because it’s credit without the credit card. It makes it easier to purchase an item because they have more time to pay without incurring any interest or fees. One study found that 80% of consumers prefer BNPL over credit cards for purchases under $100.
Using a buy now pay later business model can open the door to more opportunities for your store and your customers. However, there are some downsides to consider. Here’s an overview of the pros and cons of BNPL so you have a balanced view.
Some of the largest buy now, pay later companies include:
With so many well-known buy now pay later providers, how do you know which one is best for your business?
Ultimately, your BNPL solution is for your customers, so factor in the needs of your market.
You should also consider how well the BNPL company works for your business.
A BNPL solution is an investment, as choosing a BNPL provider costs money to implement and maintain. Of course, every investment needs to be weighed against the revenue it will gain.
At first blush, that can seem a bit steep, but the case becomes more compelling when weighed against the combination of higher AOV and higher checkout conversions – not to mention the appeal to a generation that's actively shunning credit cards.
Klarna also notes that, for luxury brands, offering a Buy Now, Pay Later online shopping option might seem to contradict the brand's messaging and positioning with consumers. But for luxury brands looking to attract a younger audience, offering additional payment options encourages them to buy where they otherwise would not have.
The BNPL market is expected to grow at a compound annual growth rate of over 24% from 2023 to 2030. As more consumers begin using buy now, pay later options routinely, they’re going to expect BNPL as a standard checkout feature.
It’s also becoming a fast staple for younger generations. Gen Z already uses BNPL for small, everyday purchases like clothing and groceries. And even older generations are using it for larger purchases like furniture.
Implementing BNPL now can help your ecommerce brand win over customers, increase sales, and establish your business as a customer-centric brand.
Buy now, pay later shopping options are proving to be the future for ecommerce businesses, but they are not a one-size-fits-all solution.
The best solutions will be adapted by the vertical and the audience while addressing your company's financial situation, perceived risks, and growth opportunities.
Get in touch with OneMagnify and learn how a BNPL solution can increase your average order value, checkout conversions, and customer lifetime value (LTV).