Your Guide to the Buy Now, Pay Later System in e-Commerce
🕒 August 27, 2022 by Reham Omar - 6 min read
- What is BNPL?
- How Does BNPL Work?
- Why Do Customers Prefer BNPL?
- What Are The Benefits Of BNPL For Retailers?
- Potential Drawbacks
Buy Now, Pay Later – BNPL in short, has sprung into the e-commerce market over the past several years, and its influence has since grown. With no additional fees and typically no interest rate, BNPL services allow clients to purchase things in installments or to pay the fee at a later time.
BNPL solutions were created to provide customers the choice to buy their goods and pay in a predefined number of installments over time as an alternative to credit cards and other types of financing mechanisms. Customers are frequently given access to these options at low or no interest rates and with no additional expenses.
What is BNPL?
Earlier, you had to save enough money to purchase anything valuable. However, there are several payment methods available today that let you stretch out the expenses of your purchase over time.
BNPL is exactly what it sounds like: you may buy what you want now and pay for it over the following few weeks, months, or even years in payments. People who don’t want to wait for their paychecks to arrive or who don’t have enough money saved up for a major purchase frequently utilize this mode of payment. BNPL is described as a point-of-sale financing solution that enables your clients to buy your products immediately and pay for them over an installment period.
Most frequently, the buyer makes a down payment on the item and then repays the balance over a certain number of installments. BNPL agreements are frequently interest- and fee-free for the consumer.
How Does BNPL Work?
Although each BNPL setup may differ contextually from the others, they all function similarly.
- The option to ‘Buy Now, Pay Later‘ is offered to customers making purchases from partnering merchants.
- These requests are either approved or not in a matter of seconds. If they are, they will agree to the conditions of payment and suggest making a modest, advance payment.
- After receiving the full purchase price, the merchant immediately dispatches the customer’s order.
- Customers can decide the repayment terms—typically choosing biweekly or monthly installments—and proceed with the transaction.
- The consumer pays the remaining payments following the predetermined conditions straight to the BNPL supplier.
Although this looks like a desirable option, there are costs involved. Providers usually impose fees on retailers in the range of 5.99 to 8 percent. However, many retailers apply for this option as their sales have greatly improved since accepting BNPL as a payment option.
Why Do Customers Prefer BNPL?
Given the growing popularity of the BNPL, businesses need to know why customer prefers this method of payment. BNPL is gaining popularity due to its smooth functioning with an onboarding process that presents little to no hassles! Some of the reasons why customers prefer BNPL are as follows: –
Decline in popularity of credit cards
Customers have been gradually turning away from the dominance of conventional credit cards since the start of the COVID-19 epidemic. This is due to reasons including high-interest rates, diminishing credit limits, and poorly managed incentive schemes compounding the problem. With credit cards on the decrease, alternative payment options including Buy Now, Pay Later have gained eminence among customers.
BNPL offers an inexpensive payment option compared to credit cards since they often have lower fees and interest rates. Credit cards get their revenue through interest rates and late penalties.
Convenience and flexibility
BNPL provides practical, adaptable methods of payment for customers who are skeptical of credit cards and don’t frequently carry cash.
With Tamara’s BNPL solution, customers are allowed to pay in installments for products without any interest charges. The revenue of the company is sourced from the partner merchant fees. This enables customers to buy expensive products innovatively and intuitively at both online and in-person stores to suit their needs.
Payment acceptance happens instantly if you’re in a store. When ordering things for a future date, BNPL also works since it enables you to pay in full in advance, guaranteeing on-time delivery without any problems.
What Are The Benefits Of BNPL For Retailers?
Any company that wants to expand its e-commerce sales has to provide frictionless checkout experiences. Customers need simple, flexible payment methods that provide them the freedom to pick how they want to make a purchase. Some of the ways in which BNPL is appealing to retailers are
Protection from repayment risk and fraud
Regardless of whether the consumer completes their installment payments, you receive the whole transaction amount up front and instantly. This indicates that Buy Now, Pay Later companies assume all client risk, protecting your company from fraud. The BNPL supplier also assumes all risk and costs if a consumer does report fraud-related disputes.
Increased customer experience
BNPL enables you to boost consumer experience, and convenience, which are the most important differences from e-commerce brands. E-commerce companies can better serve customers by expanding their payment alternatives and lowering friction, and the Buy Now, Pay Later option can help a brand take steps in this direction.
Reach more customers
To establish a relevant and recognizable payment experience and draw in more consumers, you need to provide several payment options. Buy Now, Pay Later businesses have well-established marketing channels. Extending to their shop directory and email marketing, BNPL presents you with more chances to attract new clients.
With Tabby, more than 1.5 million active e-commerce clients in Saudi Arabia and the UAE offer customers to divide their purchases into four interest-free installments. Buying a big-ticket item, can entail the fear of sudden loss of a sizable income or paying high-interest rates on credit cards. Therefore, if a customer is given the option of making a significant purchase with repayment spread over a period of time, they are more inclined to undertake it. This is one of the reasons BNPL is helping to increase conversion rates.
Though it is a widely preferred payment option among customers worldwide, Buy Now, Pay Later has a few limitations. There are no benefits or rewards offered with this financing option, and it doesn’t assist purchasers in establishing good credit. Additionally, there can be a delay in completing the refund if the customer decides to return the goods. Even if they have submitted their return, they must continue paying until the issue is resolved to prevent being marked for default.
Despite being a relatively new payment mechanism, Buy Now, Pay Later is having a significant influence on e-commerce. Although it might not be the best option for every e-commerce site, staying relevant with the payment methods that customers want to use is crucial for meeting their demands and increasing sales. BNPL is becoming increasingly significant with regard to e-commerce, and shop owners and enterprise owners may well benefit from keeping an eye on this evolving payment mechanism.