Made popular during the pandemic and sustained due to economic distress and the rise of online competition, the Buy Now, Pay Later (BNPL) model continues to be popular and sought-after by consumers of various product types. Therefore, it has become one of the fastest-growing payment solutions for retailers.
But is adopting it right for you and your business?
What is BNPL (buy now, pay later)?
BNPL (buy now, pay later) is a financing option that lets customers pay for higher-value items over time, on a schedule that they set with the merchant. Generally, they can take their purchases home immediately. The process is typically facilitated by a merchant account or payment provider.
When a customer decides on the product they want to purchase, they enter into a contract with the seller. This document specifies how much is owed, and lays out the payment schedule to which the buyer must adhere.
The provider then runs a soft credit check on the customer to make sure that they have the means to satisfy their long-term obligations. After approval is granted, the customer can take their purchase home immediately.
Meanwhile, your provider pays you the full amount that the customer owes.
The buyer pays an initial amount, with installments thereafter until the debt is resolved. Customers generally are charged no interest with BNPL, but you, as the merchant, will still be hit with a per-transaction fee of anywhere between 2 and 8 percent of the sales amount.
Benefits of BNPL for merchants.
BNPL can help your business in several ways. Offering it enables you to provide products to more people, can increase sales numbers, raise your average order value and cash flow, boost customer loyalty, enhance your marketing ability, and reduce fraud.
If you are accepting payments for clothing, furniture, or any other higher-value items, you will find that customers often don’t have enough money to pay all at once. By offering BNPL, you can make your pricier items available to a wider range of buyers with a financial arrangement they can afford.
Your willingness to be flexible can often lead to increased sales and can foster long-term loyalty to your brand.
Since buyers know that they will be able to pay for what they buy in affordable chunks, they are more likely to purchase higher-value items and in greater quantities. As the number of sales as well as the average item value rises, you naturally receive an added infusion of cash into your coffers.
Once you are set up with a payment provider, you can start to advertise your new BNPL option to customers. Promoting this popular payment model lets prospective buyers know that you are willing to work with them to make the products they want more affordable.
In addition to the marketing advantages, BNPL also enables you to reduce your risk of fraud and chargebacks. This is because all credit checks, financing, and payment processing are handled by your BNPL payment provider.
Although you remit a per-transaction fee, those costs are usually offset by the value of the sales your BNPL provider helps to facilitate by taking on these burdens.
Deciding whether BNPL is right for your business.
Since every company is different, how do you know if BNPL is ideal for yours? Consider the nature and value of the products you sell, as well as the demographics of your customers.
Although BNPL has many potential advantages, it does not suit every seller. If you are on the fence about whether you should incorporate BNPL into your operations, think about the type and value of the goods you sell.
BNPL enables payment solutions for retailers who are sellers of high-ticket items to cater to customers who cannot afford the hefty price tags in one payment. At the same time, low-value product vendors can use BNPL to incentivize customers to ring up larger baskets than they otherwise would have.
Decide which category your goods fall into, and carefully weigh whether your customers would respond positively to this added financial arrangement.
Another factor to consider is the average age of the majority of your customers. If most of them are over 45, they are more likely to be able to pay for bigger-ticket items without the assistance of BNPL.
That makes this financing option better suited to the younger demographic.
BNPL continues to be an effective retail and marketing tool for merchants. It’s also a popular vehicle that allows more customers to gain access to the products they want right away.
Given the many benefits and possibilities that BNPL can bring to you and your customers, it is an arrangement worth seriously considering if you want to elevate your profits while enhancing client satisfaction.
North is a leading financial technology company that builds innovative, frictionless end-to-end payment solutions designed to simplify and grow businesses of all sizes. From the front door, to the back office, the developer world, and partnerships that expand the payments landscape, North offers proactive, comprehensive merchant services, in-house processing, and more.
