Everything Retailers Need to Know about Buy Now, Pay Later
| In 2015, a new way to pay swept eCommerce. Called buy now, pay later (shortened to BNPL), it was defined by payments in four installments, with little to no interest and minimal credit checks. As BNPL services launched across Australia, Europe, and North America, this new way to balance a budget caught the eyes of millennial and Gen Z shoppers. Look at Everything Retailers Need to Know about Buy Now, Pay Later.
And then the pandemic happened, and the ability for customers to pay later—now even more flexible, with some payment terms expanding beyond pay in four—really took off. “Buy Now, Pay Later is seeing a massive rise in demand from shoppers, fueled by a pandemic pushing consumers towards online shopping and new budgeting tools,” says Sezzle, a popular buy now, pay later service provider. “In a Sezzle user survey during the height of COVID, over 80% of Sezzle users said they would rely more on Sezzle this holiday season.” With its popularity and continuing growth, BNPL is a must-have for retailers selling online, especially during the 2021 holiday season. In this article, we’ll review what you need to know about adding a buy now, pay later to your store:
What is buy now, pay later?Buy now, pay later, really, is exactly what it sounds like: a way for shoppers to buy their goods now and pay them off later. It’s a short-term financing option where shoppers agree to pay for their purchase in installments after a downpayment (typically 25%). BNPL generally promises no interest and, depending on the service provider, no late fees with minimal to no credit checks. However, payment plans above the typical pay-in-four installments can charge interest, and some BNPL providers do charge fees for missed payments or renegotiating installments. BNPL is primarily used for online shopping and is now available for a wide range of products and price points. Retailers selling $900 leather coats offer it, and retailers selling $20 fitness aids offer it. Online shoppers are coming to expect an option to buy now and pay later everywhere they shop online. While shoppers of all ages use to buy now, and pay later, it’s particularly popular with millennials and Gen Z. In 2019, just 6% of American Gen Z shoppers were using BNPL. By 2021, 36% were paying for their online purchases with BNPL. American Millennials are even bigger fans: 41% have used the buy now, pay later in 2021. Gen X and older are also on board, though BNPL reigns supreme with younger shoppers. There are different buy now, pay later service providers out there, and they all have their own quirks. Overall, though, here’s how the service works:
Are there buy now, pay later alternatives?Buy now, pay later isn’t an entirely new concept. The basic principle behind it—pay in installments, not all at once—has been around for decades. Installment lending was the most popular way of paying off purchases prior to 1977, and BNPL is an updated take on that. Alternatives exist in the form of payment management methods shoppers have been using for years. The vast majority of retailers offer at least one of the—credit cards are ubiquitous with shopping—but there are good reasons why buy now, pay later has taken off and is now vital for online retail. Let’s examine the alternatives to demonstrate why. BNPL vs point of sale financingTechnically, all buy now, pay later is the point of sale financing, but not all point of sale financing is BNPL. Point of sale financing that isn’t BNPL is still offered at the same stage—as shoppers are paying—and involves payment installments. Like BNPL, customers receive their items right away. It generally involves interest, though there may be interest-free periods, and payments take place over a year or more. Typically, big-ticket items such as appliances and furniture are eligible, and clothing and smaller personal goods retailers are less likely to offer it. Compared to BNPL, point-of-sale financing is less flexible and more expensive—because of the interest charges—and requires credit checks more often. Shoppers are less likely to encounter it because of the narrow application. BNPL vs layawayLayaway payments were first used in the 1930s to help shoppers stretch budgets impacted by the Great Depression. Shoppers agree to payment terms and make payments in installments while the retailer stores the item until it’s fully paid off. While popular for decades, Layaways was eventually usurped by credit cards. They’ve seen a slight comeback in popularity in the last decade, as their no-interest terms offer an alternative to credit card debt. Because shoppers only receive their items after they’ve paid off the purchase in full, BNPL presents a more attractive low-to-no interest alternative to layaways. Buy now, pay later plans are also typically less strict about late payments. BNPL vs credit cardsCredit cards are the most common alternative to buy now, and pay later—in fact, they’re the most common way to pay over everything else. Like BNPL, shoppers receive their purchases right away and pay off the owed balance over a period of time instead of all at once. Unlike BNPL, shoppers have credit limits and are subject to higher interest if they don’t pay off their entire balance. Credit cards are unlikely to lose their importance any time soon. Buy now, pay later plans, with their fixed payment installments, are less flexible than credit cards. As long as shoppers pay their monthly minimum, they can take as much time as they need to pay off a purchase. But the higher interest rates make credit card debt hard to manage compared to BNPL plans. BNPL gives shoppers a way to manage their budgets while avoiding excess credit card debt. Over half of BNPL users prefer it to credit cards, and 38% expect it to replace their credit cards eventually.
|
{randomimage}wp-content/uploads/banners,100%,auto,Random image,https://iconicerp.com/apply-for-trial/{/randomimage}
