What Does Buy Now, Pay Later (BNPL) Mean for Business? | Finturf.com (2022)

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.

ThisPOS financing systemwas 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.

(Video) Fintech course on Buy Now Pay Later (BNPL) by Global Fintech Academy

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 andhow to offer customer financingthat fits your business strategy.

Benefits of Buy Now, Pay Later for Business

What Does Buy Now, Pay Later (BNPL) Mean for Business? | Finturf.com (1)

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 bySearch EngineLandfound 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.

(Video) Best Buy Now Pay Later (BNPL) Solutions for your Business

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

  • Increased sales.Data fromQuantum Metric showsthat 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

What Does Buy Now, Pay Later (BNPL) Mean for Business? | Finturf.com (2)

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.

(Video) Is Buy Now, Pay Later A Good Idea For Consumers?

  • 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; aPYMNTS.com​​ report revealedthat 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.

(Video) Buy Now Pay Later (BNPL) Explained- Financial Planning Friday| Gaurav jain

What Does Buy Now, Pay Later (BNPL) Mean for Business? | Finturf.com (3)

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.

(Video) What is BNPL(Buy Now Pay Later) in IIFL || Explained everything in Detail ||

FAQs

How does buy now, pay later work for businesses? ›

When a customer selects the Buy Now Pay Later option, the retailer is immediately paid in full by the credit provider. The provider then handles all payments from the customer and deals with any defaults, so there is no financial risk to the seller.

What is BNPL and how does it work? ›

How Buy Now, Pay Later Works. Using a Buy Now, Pay Later (BNPL) option to spread out payments on a big buy resembles a personal loan in that your payments are split up into equal installments over time, typically just a few months. These loans are often interest-free as long you make your payments on time and in full.

What is the buy now, pay later system? ›

Buy now, pay later is a form of financing that lets consumers pay for purchases over time. Buy now, pay later, also called installment lending, is surging in popularity as technology has made it easy to offer fast, seamless experiences in store and online.

What happens if you don't pay BNPL very? ›

What happens after the delayed payment period? If you have not paid the cash price in full or have only made a partial payment, a lump sum of interest will be charged to your Very account. Any outstanding balance plus the interest will now become payable on your account.

Why is BNPL good for merchants? ›

This means BNPL may help retailers reach a wide range of shoppers who will purchase higher-quality and valued goods because they can pay over time. This can help increase revenue and average order values for retailers.

How does BNPL for B2B work? ›

B2B Buy Now, Pay Later (B2B BNPL) is a type of short-term, interest-free financing that lets business buyers delay payment or spread the cost of a purchase over time, while the seller gets paid straight away.

What is the risk of BNPL? ›

One of the primary financial risks of BNPL is that it may encourage you to spend significantly more than you normally would. Almost 70% of consumers that have used BNPL services admit to overspending when using them. “With these loans, overspending is kind of the point,” Schulz said.

Who uses BNPL? ›

Americans between 35 and 44 years of age are most likely to use BNPL more than once a week. Those over 54 are most likely to use BNPL once a year or less. Roughly twice as many male consumers use a BNPL service more than once a week compared to female consumers (9% versus 5%).

Is buy now, pay later a good idea? ›

Buy now, pay later is convenient but can quickly turn into a nightmare. It's easy to fall into traps like missed payments and late fees. Even if you never miss a payment, BNPL purchases lack consumer protections and can make returns a hassle.

Why is BNPL so popular? ›

BNPL allows shoppers to pay less now without having to worry about interest rates, like you might on a credit card. It's an attractive option at checkout — but it has the potential to impact young people and low income people more than anyone else.

Is buy now, pay later credit or debit? ›

Buy now, pay later, or BNPL, is a type of installment loan. It divides your purchase into multiple equal payments, with the first due at checkout. The remaining payments are billed to your debit or credit card until your purchase is paid in full.

Who is the biggest BNPL company? ›

Who are the biggest BNPL companies? With millions of users, Klarna and Afterpay are the two biggest BNPL companies, according to a 2022 report from yStats.com. Both companies work with tens of thousands of retailers and are responsible for millions of transactions.

Does BNPL affect your credit score? ›

Using BNPL

If you make payments on time, this could positively impact your credit score. On the other hand, if you miss payments, this can negatively impact your credit score. One thing to remember is that only some BNPL providers can provide repayment history information to credit reporting bureaus.

Why am I not eligible for buy now pay later? ›

Because of how buy now pay later works it is a form of credit – you are being lent the price of the item. That means buy now pay later providers may check your credit score before deciding whether to approve your application. If you have a bad credit score you are likely to be refused buy now pay later credit.

Which BNPL is best for business? ›

Whether your business lives online or you provide in-person services, BNPL can help you achieve a sale even when the person isn't able to pay in full.
...
  • Affirm: Best Overall. ...
  • Klarna: Best For Fashion & Luxury. ...
  • PayPal Pay In 4: Best For PayPal Merchants. ...
  • Afterpay: Best For Square Merchants.
29 Jul 2022

How much do BNPL companies charge retailers? ›

BNPL is not cheap for retailers. They pay between 3% and 7% of the purchase price to their BNPL provider. These fees are much higher than interchange fees retailers typically pay – and which they have long bemoaned.

How much do BNPL companies charge merchants? ›

BNPL merchant fees tend to range from 3.39-6% + a fixed fee (usually $0.30) on each transaction. Consumers aren't charged any fees unless they are late on an installment payment.

Is BNPL a B2B? ›

Well, BNPL is a method of bringing those agreements and processes from the offline world into the online world. In recent years there's been an explosion in the use of e-commerce as it has become the number one way to buy in B2B spheres post-pandemic.

What does BNPL stand for? ›

What is Buy Now Pay Later? The popular Buy Now Pay Later (BNPL) products you are often offered at the checkout are credit agreements – a form of borrowing. With these products, you usually don't pay any interest or charges on the amount you've borrowed: if you keep to your repayment agreement.

What are the pros and cons of BNPL? ›

Buy now, pay later plans often don't charge interest and are often easier to get approved for than traditional credit cards or lines of credit are. Normally, BNPL doesn't affect your credit score; however, late payments or failing to pay can damage your credit score.

Why credit cards are better than BNPL? ›

Finally, credit cards offer purchase protections and rewards for spending that BNPL services generally do not. Rewards card point junkies who pay off their balances monthly will likely want to keep grinding on their money-back instead of opening separate BNPL accounts.

How do I start a BNPL business? ›

To offer a BNPL service to your customers, you'll need to research and select a BNPL provider that suits your business. Once you've selected a provider, you need to sign up with them as a merchant. Once your application is approved, you'll need to integrate the system into your online or instore payment platforms.

Where is BNPL most popular? ›

Sweden has the largest BNPL market share. Klarna has almost 150 million active users.

Is BNPL good for consumers? ›

If a consumer needs to make a big purchase, like a dishwasher, but doesn't have the cash on hand to buy it outright, BNPL can help that consumer spread out payments without racking up credit card debt. “In a limited scale, in terms of the number of purchases you're making, it can be a good thing,” he says.

What is the maximum amount a customer can pay through buy now, pay later? ›

Credit line: You can avail credit upto Rs 1 Lakh, shop on Flipkart, experience your products and then pay for them next month or in 12 Months over EMIs, at your convenience.

Will BNPL replace credit cards? ›

"So BNPL won't replace credit cards but instead, continue to give consumers another option in terms of financing," says Dvorkin. "Many credit card providers have embraced the service and even started offering their own versions of BNPL."

Who invented BNPL? ›

“Buy now, pay later” as we know it today probably started with department stores like Nordstrom issuing private-label credit cards in the 1980s and 90s, and in the past decade, BNPL has grown into its own market.

What is the difference between credit card and BNPL? ›

Credit cards and BNPL plans let you pay over time, sometimes without any interest. BNPL doesn't require good credit and has a pre-set payment schedule. Credit cards may offer more benefits and protections.

How do pay later companies make money? ›

How does BNPL make money? BNPL makes money from both sellers and consumers. In case of sellers, they pay BNPL a fee ranging between 2% and 8% of the purchasing amount if the customer uses the BNPL facility.

Are BNPL companies profitable? ›

BNPL players are challenged for profitability

Compared with traditional installment loans, BNPL makes less money for lenders with the 'current' business model in place today. The primary revenue streams for BNPL loans include the following: Merchant Discount Rate (MDR), i.e. fees merchants pay to BNPL firms.

How do interest-free payment companies make money? ›

How do BNPL Companies make money? Merchants usually pay a BNPL charge ranging from 2 to 8 percent of the purchase amount. Some providers also charge a flat fee of 30 cents per transaction. BNPL companies, like the Credit Card issuers, pay the vendors in full and then recover money from the customers.

Is buy now, pay later a good idea? ›

Buy now, pay later is convenient but can quickly turn into a nightmare. It's easy to fall into traps like missed payments and late fees. Even if you never miss a payment, BNPL purchases lack consumer protections and can make returns a hassle.

What is one major reasons so many people are attracted to these buy now, pay later loans? ›

Buy now, pay later services function much like a credit card, but they have some distinct advantages like 0% interest and no credit check (usually, anyway). As such, 27.42% of consumers agree that BNPL services could eventually take the place of their credit cards and would like for that to happen.

What are the 3 main revenue sources? ›

Types of Revenues

Operating revenues describe the amount earned from the company's core business operations. Sales of goods or services are examples of operating revenues. Non-operating revenues refer to the money earned from a business's side activities. Examples include interest revenue and dividend revenue.

How big is the buy now, pay later market? ›

Buy Now Pay Later Market Size is projected to reach USD 3.68 Trillion...
...
Report MetricDetails
Market SizeUSD 3680 Billion by 2030
CAGR45% (2022-2030)
Historical Data2019-2020
Base Year2021
8 more rows
26 Jul 2022

How many people default on buy now, pay later? ›

42% of 'buy now, pay later' made late payments toward those loans, survey finds.

Who is the biggest BNPL company? ›

Who are the biggest BNPL companies? With millions of users, Klarna and Afterpay are the two biggest BNPL companies, according to a 2022 report from yStats.com. Both companies work with tens of thousands of retailers and are responsible for millions of transactions.

How does Afterpay make money if they don't charge interest? ›

As previously stated, Afterpay does not charge customers any interest or additional fees to be able to pay via installments. Instead, its merchant partners are the ones that pay the company for every transaction facilitated through its payment gateway. Afterpay charges merchants a 30-cent flat fee on every transaction.

Who owns buy now, pay later? ›

Afterpay Limited (abbreviated as Afterpay) is an Australian financial technology company best known for its buy now, pay later (BNPL) service. It operates in Australia, the United Kingdom, Canada, the United States, and New Zealand. Afterpay was founded in 2014 by Nick Molnar and Anthony Eisen.

What are the risks of buy now, pay later? ›

One of the clear dangers of BNPL is the link to overspending. With BNPL services becoming more widely available, consumers are choosing to finance more and more of their purchases via this method. This means that they end up spending far more than they would were they to make the full payment at the point of sale.

What are the pros and cons of BNPL? ›

Buy now, pay later plans often don't charge interest and are often easier to get approved for than traditional credit cards or lines of credit are. Normally, BNPL doesn't affect your credit score; however, late payments or failing to pay can damage your credit score.

Is buy now, pay later a trap? ›

Many users are missing payments — and regretting their purchases. According to Credit Karma, almost 40% of BNPL users say they've missed at least one payment. BNPL services generally don't charge interest like credit cards, but they do charge fees or other penalties when users miss a payment.

What kind of people use BNPL? ›

Globally, 28% of millennials have used a mobile wallet/digital payment at the point of sale, compared to 20% of total respondents. And it's these millennials and Gen Zers that are driving the massive growth in buy now, pay later (BNPL) platforms.

How is BNPL better than credit cards? ›

Ownership costs of credit cards are generally higher as there is a joining fee, annual fee, rewards redemption fee etc. whereas BNPL cards do not have a joining or annual fee.

Who are BNPL providers? ›

What is BNPL? BNPL providers offer consumers the opportunity to purchase products/services and to defer payment in full until a later date, typically by simply signing up to the provider's app and undergoing a rudimentary automated check (rather than a typical credit check).

Videos

1. BNPL for Businesses - | Buy Now Pay Later for Businesses | B2B BNPL | B2B Payments
(Digital Money Lab)
2. Is buy now, pay later a sustainable business model? | FT Tech
(Financial Times)
3. Best Buy Now Pay Later (BNPL) Solutions for your Business | Affirm, Afterpay and Klarna
(Kasey Luck)
4. Buy Now Pay Later Business Model - What it means
(Global Trends Library)
5. Buy Now Pay Later (BNPL) Solution for your Business | Pros and Cons
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6. WHAT IS THE DIFFERENCE BETWEEN "BUY NOW, PAY LATER" SOLUTIONS AND A COMMON CREDIT CARD?
(PaymentGenes)

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