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Buy now, pay later is the new short-term financing solution for online consumers. Find out why this instalment payment method is popular with e-commerce customers.
With the impact of COVID-19 and global lockdowns still being felt around the world, e-commerce customers are looking at new ways to save online without going over budget or getting into debt. Buy now pay later is a type of instalment loan service that has become popular in recent years and allows customers to pay for a product in separate instalments.
BNPL divides a purchase into multiple equal payments, with the first payment due at checkout. This could be anywhere from 5% to 10% of the overall price. The remaining payments are billed to the customers debit or credit card until the purchase has been paid in full.
Buy now pay later has proven to be popular with online customers who are looking at new ways to pay and save during economically challenging times.
According to a report from Adobe Analytics, COVID-19 led to a surge in the use of BNPL payment among online shoppers with an increase of 21 per cent of the customers buying now and paying later during the 2021 Cyber Monday sales.
Research by data company Equifax estimated that approximately 15 million adults in the UK were actively using buy now pay later payment options, while 44 per cent of customers said that they have used BNPL payment options in the past year in a 2021 survey from Credit Karma.
However, it isn’t just consumers who favour the buy now, pay later format, as online CEOs, entrepreneurs, and thought leaders predict that BNPL will become one of the more popular ways to purchase online, eventually even overtaking credit cards in popularity among post-pandemic e-commerce shoppers.
As well as offering consumers a way of managing their finances more effectively, Buy now pay later is also both interest and fee-free.
BNPL repayments are normally fortnightly or weekly. With the right payment plan in place, consumers can purchase items without missing out on deals or low-stock items because they haven’t been paid yet.
While indeed Buy now pay later is very popular with online consumers, particularly consumers with low-earning incomes and those from historically marginalized communities without bank accounts or with limited access to credit, it is also worth noting that there are pitfalls for consumers who choose to buy now and pay later.
With the temptation to overspend, it can be easy for consumers to lose track of how much they have spent, often forgetting that the price of the purchase will eventually have to be paid in full over time.
Consumers also face a risk of being charged a late fee if a payment is missed which can have a damaging effect on both finances and credit score. If repayments are continually missed, late fees could eventually dwarf the cost of the product bought, thus putting the customer in a difficult situation.
Now that we have seen the quickly expanding market of BNPL worldwide and in the UK, let’s dive into why you should definitely consider providing one of these payment methods in your Ecommerce. Firstly – contrary to popular belief – fashion is not the only sector that may benefit from this kind of payments. In fact, Amazon itself has chosen to focus on a Pay Later solution for larger products like electronics and for utility bills. Moreover, about one in three UK consumers used to pay with Buy Now Pay Later (BNPL) methods when purchasing casual wear, as revealed by a survey conducted in 2021. Another 31.4% used to do so when eating out, while 25.7% of respondents used a BNPL solution when purchasing beauty products, over 20% for tech products and 18% for travel.³ Therefore, regardless of the product, this solution can be right for your business model.
Moreover, since these options are growing in popularity customers are now expecting to find them when shopping online and by providing the possibility to pay in different installments you can influence the customer decision to purchase an item. A research carried out in 2021 shows that 44% of people who were interviewed would use BNPL options more often if merchants offered them and only 4% disagreed with that statement.⁴
One of the main strengths of Buy Now Pay Later is that they give a solution to what in the business and marketing world is called “pain point”, a specific problem experienced by a prospective customer. In fact, people can find themselves in need to make large purchases in time when they don’t have financial availability to do so. Big expenses like electronics can add up to other expenses like utility bills, car check-ups or household renovations, just to name a few. Being able to provide flexibility of payments through varied payment methods and interest-free loan options at check-out builds trust and increases customer loyalty for your Ecommerce.
Big companies like Amazon have seen an opportunity and have started to experiment with BNPL options themselves. In fact, Amazon has already jumped on the BNPL bandwagon by starting with India and it will likely quickly expand to other markets like the US and Europe. According to Amazon’s press release in June 2021, Amazon Pay Later, which was launched during the covid pandemic in India, has reached 2 million customers and over 10 million transactions have been recorded with a success rate of 99.9%.⁵ Signing up to Amazon Pay Later allows you to pay on Amazon.in in EMI (equated monthly installments), which are installments of the same value, or the full amount the month after the purchase.
PayPal is also active in different countries like Australia, the US and UK with solutions like Pay in 4 or Pay in 3, where your customers can split their purchase into three or four interest-free payments, with no set up fees or charges.
In the meantime, companies like Klarna or Afterpay have started loyalty programs for their users. By downloading their app and signing up to the program, customers can choose among many brands which offer payments in installments and earn reward points that they can use during the next purchase. Being part of the brands in the rewards program can be a great way to increase loyalty to the brand and have recurring purchases from the same customer.
However, there are many other advantages to integrating Buy Now Pay Later into your Ecommerce check-out page:
If you don’t already have BNPL as a payment method in your Ecommerce it is important that you add one or more of the options available on the market in order to reach a wider public and to provide the payment method that customers are asking for. If you sell a product or service that targets younger populations this becomes a prerogative in order to remain competitive against your competitors. Moreover this can be a way to build trust and loyalty with your customers and make the most of the reward programs BNPL companies are now building.
Buy now pay later is a short-term financing solution for those who may not have the financial means to pay for the full price of an item immediately, and can be an effective way to pay for a transaction in instalments to better manage costs. While buying now and paying later certainly has its benefits, consumers should also be careful to keep within their financial means and to ensure payments are up to date.
However, for many online consumers, buying now and paying later can be a convenient way of spreading the cost of their shopping and if done correctly, can be an effective way to shop the latest products without missing out on fantastic deals and promotions.