Business Tips

What is Buy Now Pay Later, and Is It Right For Your Business?

Fiverr Team
April 25, 2022
buy now play later

As an online retailer, getting customers to click the "buy" button is the ultimate goal. But in today’s economy, closing the deal can sometimes be a challenge. Consumers are often hesitant to part with their hard-earned money and will think twice before adding to their credit card balances.

The good news is, if your customers don’t have enough cash on hand to buy your products, you don’t necessarily have to miss out on the sale. Offering buy now pay later (BNPL) as a payment option can help you capture those sales and offer a better customer experience.

What is Buy Now Pay Later?

Buy now pay later is a point-of-sale agreement financing option that allows your customers to purchase your goods right away and pay for them over an installment period.

In most cases, the customer makes an upfront payment towards the purchase, then pays the rest off over a predetermined number of payments. For the consumer, BNPL agreements are often interest-free and don't come with any added fees.

How Does BNPL Work?

While each BNPL arrangement may be a bit different, they all work in essentially the same way. When a customer makes a purchase with a participating retailer, they'll have the option to choose "buy now pay later" when checking out.

Within seconds, they’ll know if they’re approved. If they are, they’ll make a small payment upfront and agree to the payment terms. The merchant receives the full purchase amount and ships the customer’s order to them right away. Then, the customer pays the remaining installments directly to the  BNPL provider according to the agreed-upon terms.  

While this certainly seems like an attractive option, it doesn’t come without a cost. Many providers charge around 5.99% in fees to retailers, and some charge as much as 8%. Despite this cost, many retailers swear by this service, noting that their sales have significantly increased since adding BNPL as a payment option. However, it’s not the right choice for every business. Here are some of the pros and cons to consider.

Benefits of BNPL for Business Owners

Increased sales revenue is one of the biggest advantages of offering BNPL. Adding this payment option can decrease the number of abandoned carts on your e-commerce site and allow you to close more sales than you otherwise would.

By splitting up the payments, you also make your products more affordable to a larger audience. This may help you sell more big-ticket items and attract younger customers who might not have as much spending power. This also often translates into an overall higher average order value (AOV).

Offering BNPL also allows you to provide a better customer experience. Consumers are happiest when they have control over their purchasing decisions, and offering flexible payment terms can make them feel empowered. Satisfied customers are more likely to return and purchase again, potentially increasing your recurring revenue.

Potential Drawbacks

While all these advantages may make adding BNPL seem like an obvious choice, there are some potential drawbacks to consider. Paying up to 8% in fees is often one of the biggest concerns. However, many retailers find that the increase in sales easily offsets this extra cost. Still, it’s a good idea to factor in this extra expense when making your decision.

Some retailers also find that integrating the BNPL payment option into their current sales system isn’t as easy as they thought. The necessary tools and technology may add an extra cost, and you may find that you need to hire an e-commerce website expert to help you with the setup.

It’s important to note that not all businesses will qualify. Many BNPL providers vet the businesses they work with. If you don’t meet their minimum criteria, adding BNPL to your checkout may not be an option for you. Certain industries, like gaming and tobacco, are also not eligible to participate.

Benefits of BNPL for Customers

Most customers love the idea of being able to get instant access to the products they want without having to pay for the whole thing upfront. If your BNPL provider offers zero-interest financing, it’s also more attractive than using a credit card.

In most cases, BNPL providers will only do a soft credit check, which won’t impact the buyer’s credit score. This may also be a benefit for buyers who have been shut out of other financing options due to credit issues.

Potential Drawbacks

Despite the instant satisfaction BNPL offers, consumers should always be careful when taking on unsecured debt. Not only can it quickly add up and create financial troubles, but there are also some drawbacks to using BNPL instead of a regular credit card.

This financing option doesn’t help buyers build good credit, and there are none of the perks or rewards that are often found with traditional credit cards. Also, if the buyer decides to return the item, there may be a delay in processing the refund. Even if they've sent in their return, they’ll need to keep making payments until it’s resolved to avoid being flagged for default.

How to Implement BNPL in Your Online Store

To begin offering buy now pay later services, you’ll need to choose a provider and register with them. Then, you’ll follow their instructions for integrating the new payment option into your e-commerce site.

Once you’re all set up, you’ll want to make sure you make customers aware of the BNPL option early in their buying journey. This makes it more likely that they will actually use it. Presenting the option on a product’s detail page may help encourage purchases that the consumer might otherwise believe are outside of their current budget.

When choosing your BNPL provider, it’s important to do your research and fully understand their terms. Make sure the charges involved are both budget-friendly for your business and reasonable for the consumer. If there is a problem with the BNPL provider you choose, it could potentially damage your reputation, so take the time to carefully weigh your options.

The Major BNPL Players

As the popularity of buy now pay later grows, you can expect to see new providers coming into the space, including credit card companies that offer similar options. For now, though, it might be a good idea to stick with one of the major players, as these companies have already built a solid reputation. Here are four you may want to consider.

1. PayPal Pay in 4

PayPal has been a trusted name in the eCommerce space for a long time, making their Pay in 4 product popular among both customers and retailers. It’s backed by the same Purchase Protection and security as other PayPal purchases and offers customers the option to divide their purchases into four interest-free payments. Customers will get a decision in seconds, and the credit check won’t impact their credit score.

As a retailer, you can choose to add both Pay in 4 and PayPal Credit to your PayPal checkout, offering two immediate financing options. One of the biggest benefits of using PayPal is that there are no additional costs. Both of the Pay Later options are included in your existing PayPal rate. PayPal also provides a convenient integration that adds dynamic Pay Later messaging throughout your eCommerce site.

2. Afterpay

With 19 million global customers, Afterpay is another well-known option. It offers buyers the opportunity to pay for their purchases in four installments over a six-week period. Since there is no application fee and no interest payments, it doesn’t cost the consumer anything extra to use Afterpay as long as they make all of their payments on time. However, there is a fee for merchants. Currently, the company charges a flat fee of $0.30 per transaction, as well as a 4% to 6% commission. Afterpay also offers easy integrations with most of the major platforms, including Shopify, WooCommerce, Wix, Stripe, Magento, and more.

3. Klarna

Klarna offers both Pay in 4 and Pay in 30 days financing options. Both are interest-free.

This service currently costs merchants a fixed fee of $0.30 per transaction, as well as variable fees that range from 3.29% to 5.99%. The platform also offers simple integrations with a wide variety of partners, including Shopify, Adobe, Wix, Stripe, and more.

4. Affirm

Affirm also offers 0% APR. This platform allows customers to make four payments in two-week installments or pay for up to 36 months. They’ll also pre-qualify customers so they can see their purchasing power early in the buying journey.

Like many of the others, this platform charges a fixed fee of $0.30 per transaction and an average commission of 5.99%. Affirm also integrates with WooCommerce, Shopify, Wix, Salesforce Commerce Cloud, and other popular platforms.

Is BNPL Right for Your Business?

The buy now pay later financing option has become very popular in recent years and likely isn’t going away any time soon. It offers several important advantages to online retailers, and as more sellers offer this option, not having it can become a competitive disadvantage.

Before implementing BNPL into your business, you’ll need fully vet your BNPL provider and ensure you’re prepared to pay the associated fees. You'll also want to confirm that the provider you’re considering will seamlessly integrate with your current sales system.

Hire an e-commerce management expert or seek out business consultation to see how BNPL can best benefit you. Once you’ve followed all these steps, you’ll be ready to enjoy all the benefits BNPL has to offer, including increased sales and greater customer satisfaction.  

Fiverr Team
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