Loan Advice Best Practices

Everything About Buy Now, Pay Later for Business

by Martha Pierson   Aug 11, 2021

If you haven't made a buy now pay later (BNPL) purchase yourself, you've probably at least heard the term. Many large retailers offer the popular payment method, alongside traditional payment methods like cash, credit, or debit. Buy now, pay later is also called pay in four, as it allows consumers to pay off their purchases in as few as four installments, with only a down payment due at the time of purchase.

This POS financing system was popularized by companies like Affirm, Klarna, and Afterpay. The first BNPL provider was Afterpay, which popped up six years ago in 2015. Since then, the installment payments model has spread far and wide, from large retailers like Target and Walmart to local shops like the ones served by Finturf.

The idea isn't revolutionary; rather, it's an old concept adapted for the modern age. The BNPL option is a type of financing integrated into the checkout process. This means that consumers don't have to apply for a loan or line of credit at a bank or credit union before purchasing; they can shop and apply for financing directly at the retailer.

Below we'll explore how this financing option can increase conversions, build customer loyalty, and increase average order value for businesses, along with the many benefits it offers consumers. Read on to learn more about the buy now, pay later craze that's here to stay and how to offer customer financing that fits your business strategy.

Benefits of Buy Now, Pay Later for Business

Buy now, pay later.The pandemic has played a significant role in redefining the way consumers shop. As physical storefronts closed down and new restrictions were set into place, consumers turned to their computers and mobile devices to order the items they once bought in person. As a result, from 2019 to 2020, e-commerce's share of the global retail trade rose from 14% to 17% as more and more companies went digital. As stay-at-home orders spread, bored consumers also found themselves using buy now, pay later online shopping. One survey by Search Engine Land found that consumers are spending 10% to 30% more online than they used to. This new later payment option trend isn't likely to reverse soon, either.

Amid the uncertainty, one thing is clear: consumer's new buying habits have necessitated new payment options. The BNPL industry presents an attractive payment option for consumers who don't want to pay upfront for large (or even small to medium) purchases. This payment solution is especially appealing to younger and middle-aged consumers who do most of their shopping online.

Here are just a few of the benefits of buy now pay later for business:

  • Increased sales. Data from Quantum Metric shows that between January and February 2020, brick and mortar stores that converted partially to e-commerce saw a 52% increase in sales and an 8.8% increase in conversion rate. That can likely be attributed to the fact that customers can feel confident purchasing items they would not otherwise afford.
  • Higher Average Order Value (AOV). Buy now, pay later is designed for consumers making big purchases. It makes sense that a financing option like buy now, pay later helps stores move big-ticket items. Customers who may be reluctant to drop a lot of money at once can feel more assured with BNPL payment that it will not put a huge dent in their bank account all at once. Instead, a large transaction can be managed with smaller payments.
  • Repeat purchases. Afterpay's annual report showed that ​​65% of users made at least two purchases using buy now, pay later companies in the past two months. Offering buy now, pay later options is a huge incentive for customers to return if they know they can rely on financing for future purchases.

Benefits of Buy Now, Pay Later for Consumers

Consumers in store.The benefits of buy now, pay later don't stop at the business end; consumers are just as enthusiastic about it. Especially now, when mobility is limited, consumers value the convenience, safety, and flexibility that buy now, pay later consumer financing offers.

The biggest, most obvious advantage to consumers who use buy now, pay later is that they can take a purchase home with them weeks before making payments on it. Usually, only a single down payment is required at the time of purchase. This makes obtaining big-ticket items much easier and quicker for consumers. Of course, this comes at the risk of overspending or forgetting to make a payment, but the nature of buy now, pay later reduces the risk of mindless spending and forgetfulness that purchasing with a credit card can incur.

  • Quick, on-demand consumer financing. Because late payment is offered during the point of sale (POS), a funding request is made at the time of purchase — no need to search for financing any farther than the register. Often, an approval decision is made on the spot only. Depending on the situation, there may only be a soft credit check to get a low monthly payment and low-interest rate. Many people appreciate that a pay later option gets them consumer financing without necessarily hurting their credit score. Note that some late payment providers report to a credit bureau.
  • Avoid credit card interest. BNPL is especially popular among younger consumers; a PYMNTS.com​​ report revealed that 87% of consumers aged 22 to 44 are interested in using buy now, pay later. It's not a coincidence that this demographic is also the wariest of using credit cards.
    Buy now, pay later is a deferred payment method similar to a line of credit. The major difference is that buy now, pay later isn't paid back in a lump fee at the end of the month. Instead, it's paid over time, making payments more manageable. In this way, it's a somewhat more responsible consumer choice than the swipe and forget nature of credit cards. Credit cards also usually come with a high interest rate. Customers who make their BNPL payments on time are able to avoid a penalty fee. They can also avoid hitting a credit limit. That's the precise reason why over 39% of buy now, pay later customers say they prefer to buy now, pay later to credit.
  • Transparent and flexible payment terms. Consumers confused enough by their credit card terms are even more baffled by the list of charges factored into a traditional loan's APR. Buy now, pay later, or pay in 4, as it's commonly called, simplifies the whole process in a way that makes many consumers comfortable using it. The transaction can easily be paid through the BNPL app or on the BNPL platform. Many applications send push notifications and even allow their users to set up automatic payments without a fee, ensuring they never miss a BNPL payment. Breaking the payment plan will incur a late fee.

By allowing consumers the chance to purchase items with late payment, businesses are able to make sales they couldn't otherwise. Plus, it keeps customers coming back, increasing brand loyalty and repeat purchases.

Will Your Business Benefit from Integrating BNPL Service?

Deferred payment is becoming a widespread payment method in industries of all kinds. It isn't unreasonable to expect to buy now, pay later to become just as popular and universally accepted as credit cards in the coming years. Mastercard and Visa know this, which is why they are in a race to acquire and partner with as many payment providers as possible.

Most buy now, pay later payment providers have targeted large retailers and e-commerce stores. However, the BNPL industry has recently targeted smaller businesses because of the tremendous potential buy now, pay later has in many diverse markets.

Business statistics.

Still, some industries are better suited to buy now, pay later than others. If you sell big-ticket items like jewelry, furniture, cars, or home improvement services, there's a genuine possibility that a BNPL solution can be of great value to your cash flow. The same goes for e-commerce stores that partner with a BNPL company.

Once you've determined whether a buy now, pay later company makes sense for your business, make sure you also consider the logistics of costs and possible risks of a pay later option. Before making the leap, ask yourself the following questions:

  • How easily will it integrate into your current checkout process?
  • Will you be able to pass the merchant underwriting process?
  • How much will it cost you to offer the service, and how much will it divert sales via cheaper alternatives like cash, credit, or debit card transactions?

To Sum Up

Any business can benefit from something that enhances the customer experience — more consumer choices are almost always better. Offering buy now, pay later as a payment option can draw in customers that wouldn't otherwise generate sales for your business. It's a win-win for both businesses and customers.

Martha Pierson, author at OpenLoans
Editor-in-Chief
Martha provides financial and business management analysis for retailers and service providers.