The Benefits of Buy Now, Pay Later (BNPL)

With more and more retailers relying on their e-commerce sales, it comes as no surprise that financial products to support online retail have pivoted to accommodate buyer needs.  Buy Now, Pay Later (BNPL) is one payment method that is proving invaluable to merchants.

This interesting payment method allows consumers to spread the cost of their purchases without using a credit card or taking out a traditional loan.

Buy Now, Pay Later is essentially a loan, but it is a very short-term loan and invariably, providers don’t charge interest unless payments are missed or late (some providers do charge interest – check first).

Buy Now, Pay Later is operated by a number of providers and available via Rvvup; for example, Klarna, Splitit, PayPal Pay in Four, ClearPay, and others..  Today, most big brands offer Buy Now, Pay Later and smaller online retailers are also adding it to their checkout pages.   According to finer.com - BNPL is incredibly popular:

• 2 in 5 in the UK have used BNPL.
• Millennials particularly enjoy the convenience of BNPL and 54% use it.
• The most popular app for BNPL is Klarna.
• Online purchases using BNPL are growing by 39% every year.
• Ten million Brits won’t use an online retailer unless it offers Buy Now, Pay Later.

It works by allowing consumers to split their basket into instalments (each provider provides different amounts).  The most common model splits the final sale amount into three payments, usually over a 3-month period with the first payment made at the point of purchase. The buyer reaches the checkout page, selects the BNPL option and fills out a brief application form that is subject to a soft credit check. Once approved (it happens in seconds), the consumer is directed back to the checkout to complete the purchase. Most providers send out reminders via text or email a few days before the next instalment is due.

The Benefits of BNPL

There are numerous benefits, for online businesses and consumers.

1. It’s convenient, especially when a consumer wants to spread the cost because it’s so short-term that there’s no need to use a credit card and pay off an amount over a long-term period, incurring monthly interest.
2. Mostly, there’s no interest involved, some providers charge a very small amount but all providers charge interest for missed or overdue payments.
3. There’s no damage to credit history unless payments are missed or late.
4. It’s flexible, providing buying power to the customer that may not have been available otherwise.
5. BNPL is much quicker to sign up to than a credit card.
6. Consumers can try goods first (paying the first instalment) and if they don’t like them, they return them for a refund and the rest of the payment is cancelled.
7. For merchants, BNPL transactions have lower  fees than credit card borrowing.
8. Many consumers want the option of spreading the cost so they’re more likely to shop with online retailers who offer BNPL as a payment choice.
9. Statistics state that BNPL leads to bigger spends, up to 46%!
10. Customers like the added option and are more likely to repeat purchase from retailers that offer Buy Now, Pay Later.

In Summary

Consumers today are looking for easy payment options and it seems that they prefer a very short-term loan with payment instalments over spreading the cost using credit cards.  Convenient, flexible, and low cost to merchants, BNPL is firmly rooting itself as a credible payment option that will doubtless offer more accessible, practical and convenient finance products in the future.