What Merchants Must Know about’Buy Now, Pay Later’

“Buy now, pay later” allows consumers to buy products and pay in installments, much like a credit card. Why is BNPL gaining popularity? I will answer that question and more in this post.

Using BNPL, approved clients can defer payments at checkout — online and in-store. BNPL providers pay the merchant in full, with no service fee, while the client pays the supplier in agreed-upon installments.

BNPL is also called”pay-over-time,””point-of-sale funding,” and”point-of-sale loans” Providers often describe their solutions slightly differently, though the principles are more or less the same.

Ecommerce merchants typically display a BNPL payment button along with the typical credit-card and PayPal logos, and any other payment system. The illustration below is from Affirm, a top BNPL provider.

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Ecommerce merchants typically display a BNPL payment button along with the typical credit-card and PayPal logos. Source: Affirm.

When a customer selects the BNPL choice, the provider will run a real time credit check. If the client is approved, the supplier will display to the client the terms of service — the repayment program. From there, customers can check out as usual.

The three different types of BNPL providers are fixed, flexible, and micro-loans. A fixed supplying sets the repayment schedule in advance of their purchase so the client understands the amount and number of installments.

A flexible BNPL service enables the client to pick the amount of payments — typically three to 36, based on the value of their purchase and the merchant’s agreement with the supplier. The client’s creditworthiness is also a variable.

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Micro-loans, the third kind of BNPL, grants a small loan to the consumer before completing the checkout. The client will typically pay a set fee to the BNPL supplier and will consent to a predetermined repayment schedule.

Interest, Penalties

Unlike credit cards, many BNPL providers don’t bill explicit fees and interest, including late fees. Some charge interest only for missed payments; others charge a flat fee when payments are overdue. BNPL providers encourage their repayment plans as more transparent and easier to handle than credit card debt.

BNPL providers compete with the issuers of credit cards. Both offer loans and permit buyers to pay for purchases over time. Both make money by charging fees to merchants and buyers.

However, customers see buy-now-pay-later and charge cards differently. Credit cards have hidden charges, compounding interest, and various penalties. BNPL is more transparent — rates, fees, and payment schedules are often displayed clearly and explained in easy, customer-friendly terms.

For merchants, accepting BNPL is very similar to accepting credit cards. Merchants pay a commission (or a lot of charges ) to complete a sale.

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BNPL Costs

Merchants generally pay a BNPL fee ranging from 2 to 8% of the purchase amount. Some providers also charge a flat fee of 30 cents per transaction.

A speed of 2 to 8 percent is greater than a normal credit-card discount rate, that’s generally approximately 2.9 percent plus 30 cents for card-not-present transactions (ecommerce) and about 1 percent less for card-present buys (in-store).

However, it is difficult for asking merchants to ascertain the precise BNPL costs because suppliers rarely disclose pricing with no merchant registering for an account and submitting payment-volume quotes and other info. Merchants should expect to take care of a supplier’s sales staff prior to receiving a quote.

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Most suppliers will deposit money, minus the fee, in a merchant’s account within two business days. This, again, is like credit cards.

Why Accept BNPL?

Why are an ever-increasing amount of merchants offering BNPL options if the fees are costly?

Here’s why.

  • Larger buys, more conversions, decreased cart abandonment. By providing lower monthly payments and more time to pay, merchants can use BNPL to decrease sticker shock and increase conversions. Affirm asserts that merchants will experience an 85-percent increase in average order value when clients use its BNPL services. Afterpay, another supplier, asserts a 40-percent AOV increase and a 22-percent growth in cart conversions.
  • Consumers are shunning credit cards — particularly millennials (ages 20 to 40, roughly) and Gen Z (15 to 20). Some shoppers are searching for more transparent methods to handle their finances rather than hard-to-decipher credit cards. BNPL offers payment plans which are easy to comprehend and possibly easier to repay.
  • Low cost of customer acquisition, especially during the pandemic. Merchant fees for BNPL transactions (as large as 8% ) are a small price for many companies to obtain new clients .
  • Holiday shopping in 2020. Shoppers this season will probably look for flexible ways to pay for presents. BNPL might be the quality that sets your company apart. Move fast, though. Amazon is currently implementing BNPL through a partnership with Citi.
  • No chargeback risk. Unlike credit cards, most (although not all) BNPL providers assume fraud and chargeback risks. With the ideal BNPL partner, merchants do not need to be worried about fraudulent payments.

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