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Buy Now, Pay Later: Benefits, Drawbacks, and Integration Tips

Boaz Gam

Boaz Gam

CEO

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28.03.2022
5 min
Article content
  1. What Is BNPL?
  2. How Buy Now, Pay Later Works
  3. The Advantages of BNPL for Online Merchants
  4. Current BNPL Challenges Merchants Face
  5. Tips on Making the Most Out of BNPL

The Benefits and Challenges of Buy Now, Pay Later Solutions

Buy Now, Pay Later is a relatively new payment method that has taken the eCommerce industry by storm. Keep reading to find out why it has become so popular, what advantages and challenges it has, and how merchants can maximize its potential benefits.

What Is BNPL?

Buy Now, Pay Later (BNPL) is a financing option that enables consumers to complete purchases without paying for them in full at checkout. Also known as "point of sale installment loans," such arrangements are typically short-term and interest-free.

BNPL is a payment option, the popularity of which is continuously increasing, particularly when it comes to online shopping. It's proven to be useful not only for the consumers but also for merchants who now can offer installment products and services to clients who can't or don't wish to use credit cards.

BNPL Vs. Credit Cards

Even though both BNPL and credit cards allow delayed payments, they have some critical distinctions.

When the consumer uses a credit card to make a purchase, they need to make a minimum monthly payment. Chances are that the interest accrues on the amount remaining to be paid, with the only exception for cards with a 0% introductory APR.

BNPL, on the other hand, usually comes without interest or additional fees. Besides, such arrangements have a fixed repayment schedule, typically over a several months timeline. It offers straightforward and transparent pricing models and makes it easy for shoppers to pay for products in installments.

How Buy Now, Pay Later Works

The Benefits and Challenges of Buy Now, Pay Later Solutions

While Buy Now, Pay Later schemes vary depending on the service provider, they typically operate as follows:

  1. The consumer initiates a purchase at a retailer that has a BNPL payment option.
  2. After receiving the approval that takes seconds, the shopper submits a down payment, as stated in the BNPL terms and conditions.
  3. In the following weeks or months, the client pays off the remaining sum in a series of interest-free installments.

BNPL installments are typically withdrawn automatically from the consumer's preferred payment method.

The Advantages of BNPL for Online Merchants

The Benefits and Challenges of Buy Now, Pay Later Solutions

The benefits offered by BNPL arrangements for the consumers are plenty:

  • The convenience of paying for online purchases over an extended period
  • Usually zero-interest installments
  • Lower credit score requirements compared to credit cards
  • Straightforward conditions and fast approval

Thus, it's no wonder that the popularity of this payment method is rapidly growing. But is it as beneficial for merchants as it is for their customers? Below, you will find an overview of BNPL's main pros and cons for online sellers.

There are plenty of benefits merchants implementing BNPL experience, namely:

  • Increased conversion rate. Such financing enables shoppers to purchase items even during a tight financial situation, which decreases cart abandonment and, consequently, increases the conversion rate.
  • Wider audience. Breaking the payment into separate installments enables businesses to become more relevant to audiences with lower incomes.
  • Boosted demand for high-value items. Online stores that sell high-value items like jewelry or electronic devices become more accessible with BNPL and become more in-demand.
  • Higher average order value (AOV). BNPL is known to increase the AOV by up to 45%, which means higher revenues for online retailers.
  • Improved customer experience. Customer satisfaction resulting from BNPL payments leads to a higher retention rate, consumer loyalty, and increased sales.

Current BNPL Challenges Merchants Face

The Benefits and Challenges of Buy Now, Pay Later Solutions

BNPL is still a relatively new payment option. Thus, despite its incredible success, many advantages, and few cons, it still has room for improvement.

Here are the current challenges merchants implementing Buy Now, Pay Later encounter:

  • Higher merchant fees. Sometimes, BNPL can be expensive for online retailers, with fees reaching 3-7% on top of the usual credit card processing fees. If the profit margins are tight, it's a significant factor for merchants to consider.
  • Accreditation issues. While some consumers still aren't familiar with BNPL and are reluctant to try it, others have formed preferences for specific providers. Thus, merchants are facing the need to boost the credibility of those payment methods to ensure the BNPL integration pays off for them.
  • Integration challenges. Introducing multiple BNPL providers to an online store requires each of them to be integrated into a merchant's checkout. This takes a lot of time, finances, and human resources to execute while having the potential to clutter the website and lead to increased card abandonment.
  • Consumer debt encouragement. As beneficial as this payment option is for the consumers, there's a different side to it. BNPL encourages shoppers to get more products than they can afford at a given time, which can put them in a difficult financial situation and even affect their credit scores.
  • High credit ratings required. Even though getting approved for BNPL is usually easier than getting a credit card, many providers of this delayed payment method still expect the consumers to have the highest credit ratings. Offering only one BNPL option that focuses on Prime Lending prevents the sellers from availing of a big share of business opportunities and increases the cart abandonment rate.

That being said, the Buy Now, Pay Later system is evolving at a fast pace, and these challenges are already being addressed by various providers. Besides, even with the existing challenges, BNPL is a highly beneficial addition to the payment method variety of online stores.

Tips on Making the Most Out of BNPL

The Benefits and Challenges of Buy Now, Pay Later Solutions

BNPL can get tricky for merchants to integrate successfully. However, there are ways of maximizing the benefits of this payment option. Here are some practical tips on how to do it:

  • Use a unified BNPL integration. Joining prime, near-prime, and sub-prime service providers under one integration ensures boosted consumer approval rates, accelerates sales, and improves customer satisfaction. This also promotes ease of access and reduced costs for the merchants.
  • Keep it simple. Simplicity is key when implementing a BNPL solution. Facilitating a straightforward and fast purchasing process by placing a single BNPL button in the online store helps avoid confusion and cart abandonment.

With the mentioned criteria in place, merchants are sure to see the biggest gains from the BNPL payment options' integration.

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