Buy Now Pay Later (BNPL) is one of those concepts that makes online purchasing easy. The motive behind this concept is to give users the product first and pay for it at their convenience. As easy as that sounds, there are a lot of things running on the back burner to make BNPL possible and safe for purchasing. We’ll get to that, but let’s start with the basics.
What is Buy Now Pay Later (BNPL)?
Buy Now Pay Later (BNPL) is a purchase method where a buyer can buy a product without paying for it immediately. Instead, the user must pay the price in full or in installments before a certain period. But why is BNPL becoming a popular choice among customers day by day? According to a survey by The Financial Brand in 2022, 45% of respondents said BNPL is easier to make payments. What’s more, usually, the payment is interest-free if you make the payment within the given time. For the most part, the payment option of full payment or installments depends on the company or the buy now pay later app. Regardless, there are 2 types of BNPL solutions:
#1. Merchant Transaction Fee Loan
In this type of BNPL method, the customer doesn’t need to pay any interest on the purchase. Instead, the merchants must pay a transaction fee to the third-party company that provides the BNPL solution.
#2. Shopper Interest loan
In this option, the third-party company offers the BNPL solution to the customer, where they can pay later along with a specific percentage of interest. With this, the merchant does not have to pay anything to the third-party company. Ideally, the best type of BNPL is the merchant transaction fee loan that is comparatively cheaper overall and works best in the customers’ interest.
How Buy Now Pay Later Works
Whenever you go to the checkout page, you’ll find a list of payment methods to choose from. BNPL will be an option if your business decides to add it for the customers to opt for. If the customer chooses the BNPL option, they will be required to pay a small upfront amount and pay the rest in installments later. For example, if the product’s price is $500 and the BNPL option includes 5 total installments, the customer must pay $100 now and the remaining $400 in 4 different installments. If the user fails to pay the installments on the given dates, they may be charged high-interest rates. Another good thing about BNPL purchases is it doesn’t affect the credit scores.
Benefits of BNPL for Merchants and Businesses
The BNPL method of payment is a new yet great solution for customers, but what about the merchants? Here are some of the benefits of BNPL for businesses:
#1. More Convenience Results in More Sales
As the purchases become easier and faster, the customer gets to finish their order quickly and return to whatever they were doing earlier. This process invokes a sense of a quick and non-tedious way of shopping and makes the customer buy again. Additionally, cart abandonment decreases as the convenient aspect of BNPL reassures customers that they don’t need to pay all of the amount upfront.
#2. Increased Trust and Customer Loyalty
Being able to satisfy a customer’s needs with great ease increases their trust in the brand. They remember the wonderful experience of buying from your business and tend to stick to the trusted outlets for future shopping. This increased customer loyalty also spreads further with a good word of mouth from your customers, and you get increased reach and sales.
#3. Easy Purchasing for Larger Orders
The BNPL option makes it so that you don’t have to pay the entire amount before getting the products. So, larger orders can allow the customer to buy it all at once instead of saving money and buying one product at a time. This means your business gets to sell larger orders with more order value leading to higher revenue generation.
#4. Integration
Integrations help you add BNPL payment options to your eCommerce stores, regardless of the platform your store’s launched on. It’s a quick and easy process; in case you’re stuck, most BNPL apps have an excellent customer support team that can help you with the setup.
Protection Mechanisms in BNPL for Business
BNPL is an easy payment method for your customers. However, that comes at the cost of making it a valuable target for scammers. Businesses need to stay on their edge in terms of security and gatekeeping fraudsters to keep their reputation and customers safe. Some of the most common ways or protection measures that a business needs to take while using BNPL are:
Noticing the changes to customer behavior like multiple different purchases within a short period, or unusual purchase activityReporting frequent or random changes to customer information like passwords or addresses, etc. directly to the user and get feedback on itReach out to customers every time they place an order to give them a confirmation about itImplement some amount of automated anti-fraud tools which can screen users before purchasesAlways use digital identities with credentials such as phone numbers, addresses, device IDs, emails, etc., to link them to a customer for added safety.Use machine learning and artificial intelligence to verify the details of a customer from other platforms to ensure they are real and not identity thieves.
All of these measures must be taken to keep your business and customers away from fraud. Regardless, there is a need for better security measures and anti-theft protocols to make BNPL safer. Now that you know about BNPL let’s look at the best BNPL service providers you can use.
Affirm
Affirm is one of the most popular long-term financing solutions retailers use in every industry, from home furniture to travel. Merchants can use the adaptive checkout feature to keep BNPL options flexible. The customer can decide a combination of interest rate and duration from those options depending upon their convenience and rates. The Ability to provide flexible BNPL methods without any late payment charges and 0% APR is great for your customers. With Affirm, the interest is also fixed and won’t compound as the customer progresses through the term.
Sezzle
Sezzle is a BNPL service provider that allows customers to access highly flexible, 0% interest loans. On the face of it, Sezzle offers a very straightforward BNPL solution. There is only one payment plan with a maximum limit of $2500. It includes a 25% down payment at the time of order and 3 other installments, which the customer must pay within six weeks. There is no late charge, but the customer can reschedule one installment and extend the duration to a total of 8 weeks. But, rescheduling will cost extra charges of around $5 depending upon state regulations.
Klarna
Klarna is one of the most popular BNPL service providers, trusted by H&M, Adidas, Petco, and other 400k+ retailers worldwide. One of the best features of Klarna is that it doesn’t charge any late fees or interest for shorter finance terms if you pay the installments on your scheduled time. Despite that, the most notable thing about Klarna is its 36-month finance option that you can choose. For longer-term finance solutions, customers can have durations starting from 6 months with a variable interest rate between 0-29.99%, depending upon the duration.
PayPal Pay in 4
PayPal Pay in 4 BNPL services is offered by PayPal, the original online payment processing platform, making it highly reliable and trustworthy. Pay in 4 is exactly what it says – a short-term finance option with four installments and no interest or additional costs. This is one of the best Buy Now Pay Later apps and services for smaller purchases ranging between $30 to $1500. However, there is no option for long-term loans or a higher purchase limit.
Sunbit
Sunbit is a unique BNPL solution designed for customers to conveniently buy essential services and products. The platform offers BNPL options for auto repair, dental care, eye care, vet care, and other essential services that customers usually find unaffordable or expensive. With Sunbit, customers can do a BNPL transaction of up to $10,000 with a 3-12 months loan duration. The interest rate varies between 0-35.99% depending upon the duration, amount, credit scores of the customer, and the location. The only downside to Sunbit is that merchants don’t get clarity about the merchant charges until they connect with the platform.
Afterpay
Afterpay is a BNPL service for merchants who want to provide a 0% interest, short-term loan to make purchases conveniently. Merchants can offer a BNPL solution to their customers without paying additional charges or fees. The customers get the option to pay a 6-week loan with four installments and zero interest. Afterpay also utilizes smart credit limits to help customers stay under budget and only make purchases they can afford. If the customer fails to pay the installments in the given duration, they will be charged a late fee ranging between 8-25%.
Zip
Zip allows customers to pay for what they buy over a 6-week duration with four installments. It doesn’t charge any interest rate on the purchases made by your customers. However, there is a $4 transaction fee for every purchase the customer makes. There’s also a $7 charge associated with late installments, which can be levied if paid within 1 or 2 days after the deadline. The maximum amount limit is $1500, but it can vary from merchant to merchant. Zip doesn’t affect the customer’s credit scores, and it also doesn’t perform any credit checks before giving loans.
Splitit
Splitit is a BNPL service that requires the customer’s existing credit card with available credit. Merchants can either be paid in full upfront or be paid as the customer completes payments. Splitit allows users to pay for a purchase in 4 installments without any interest. To do this, the customer must have enough credit on their credit cards to pay for the entire purchase or the remaining installments. Splitit offers two different merchant plans: The Business standard plan – Takes 1.5% of the purchase amount and $1.50 per customer installment, and the merchant gets paid when the customer completes installments. The Business funded plan – Takes 3% of the purchase amount and $1 per customer installment, and the merchant gets paid in full upfront once the purchase is made.
Wrapping Up
Buy Now Pay Later apps are highly effective for business growth as customers welcome this recent trend with open arms. Most BNPL services provide full payment to the merchants as soon as the purchase is made, whereas the customer gets to pay the installments at their convenience. However, the merchants must consider all protection measures and choose the best BNPL service based on their business type and goals. You may now look at some of the best payment processing solutions for online businesses.
