Buy Now Pay Later (BNPL) has emerged as a groundbreaking payment innovation in today’s landscape. With its rapid ascent in popularity, BNPL is not just a consumer trend but a significant business consideration.
In 2022 alone, a staggering 360 million individuals globally tapped into BNPL, with projections from Juniper Research anticipating a leap to over 900 million users by 2027. This financial convenience has positioned BNPL as a go-to choice for many in 2023.
In this blog, we will explore the inner workings of BNPL and critically examine the buy now pay later benefits and challenges for businesses.
How Does BNPL Work?
As BNPL has become a very popular payment option, it’s essential for businesses to understand how it works. It not only helps them to make informed decisions about whether to offer this payment method but also assists in managing the associated risks and benefits effectively.
To integrate BNPL, businesses need to sign up and negotiate a deal with BNPL providers. Thereafter, businesses can integrate BNPL as a checkout payment option on their website or app.
Here’s how the BNPL process works:
- When customers reach the point of checkout and select “buy now, pay later,” your BNPL provider runs a credit check to assess their creditworthiness.
- Once verification is complete, your BNPL provider approves the customers’ purchases.
- The customers then choose the terms of their repayment plan and enter their bank pin.
- Your BNPL provider then pays you their full purchase amount up front.
- The customers are then responsible for paying the full purchase amount to your BNPL provider.
- Customers usually make an initial payment and then pay the remaining amount in fixed installments over a predetermined period of time to their BNPL provider.
Buy Now Pay Later Benefits for Businesses
From improving conversion rates to boosting revenue, buy now pay later has a lot of benefits for businesses.
Below are the major benefits of Buy Now Pay Later (BNPL) for businesses that can significantly impact their growth and customer engagement:
Improves Conversion Rates
BNPL options can lead to a reduction in cart abandonment and an increase in completed purchases. It can increase the conversion rates for your business by up to 30%.
When customers see that your business provides a flexible BNPL payment option, it encourages them and gives them a means to buy products they otherwise find too costly. Providing BNPL allows you to convert hesitant customers, thereby increasing conversions for your business.
Increases Average Order Value
Another top benefit of BNPL is the fact that it often leads to an increase in the average order value (AOV) for businesses.
Having to pay in manageable chunks over a long period of time eases the financial burden on customers. This, in turn, makes them more likely to add a larger-than-usual number of items to their order.
Not only this, but this also increases their likelihood of adding more items of higher value to their order, thus increasing your average order value.
Boosts Revenue
One of the vital buy now pay later benefits is the increase in revenue for businesses.
BNPL increases the number of purchases that customers make. Moreover, BNPL also increases the average value of each sale. As a result, cash constantly keeps flowing over to businesses, thereby boosting their revenue.
Enhances customer experience
By offering BNPL as a payment method, businesses can prioritize the needs of their customers. With BNPL, customers have the ability to select their own payment terms. This generates a sense of freedom and flexibility that makes shopping feel enjoyable and more financially accessible.
As a result, customers are less likely to abandon their carts and are more inclined to proceed with purchases. Thus, BNPL is instrumental in enhancing your customers’ shopping experience.
Expands Customer Base
One of the most integral buy now pay later benefits is the expansion of the customer base for businesses. Providing BNPL fosters a positive shopping experience for customers and improves their satisfaction, thus increasing customer retention.
Moreover, when customers see that your business offers BNPL while others do not, they are more likely to switch to your brand, ultimately widening your customer base.
Improves Business Reputation
By offering BNPL as a payment alternative, your business can significantly contribute to customer satisfaction and consequently gain a strong competitive edge over others.
Providing BNPL ensures that your business stands apart from others and enhances your business’s reputation.
Buy Now Pay Later Drawbacks for Businesses
Although BNPL services have gained popularity among consumers, there are several drawbacks for businesses that choose to offer BNPL options.
Here are the major drawbacks that businesses face when offering BNPL services to their customers:
Integration and Accreditation Issues
Finding a BNPL service provider who has received accreditation can be difficult. In addition, integrating the BNPL payment model into your business can be time-consuming and challenging.
Compatibility issues with existing systems and the potential for technical and security glitches can further complicate the integration process.
Risk of Bad Debt
Offering BNPL to customers comes with the risk of bad debt. This means that customers may overspend and fail to make timely payments, putting themselves in a risky situation of falling into a debt trap.
Imposition of a Higher Merchant Fee
When payments are made through BNPL providers, businesses are subjected to a deducted merchant fee for every transaction completed. This fee tends to range between 2% and 8%, which can significantly cut into a business’s profit line.
Cash Flow Challenges
Cash flow challenges can arise when a large number of customers defer their payments through BNPL providers. This situation places the providers in short supply of funds, making it difficult for them to fulfil the complete purchase amount owed to businesses.
As a result, businesses can face disruptions in cash flow, which can potentially disrupt their financial stability.
Conclusion
The numerous buy now pay later benefits far outweigh its potential downsides. With the BNPL market expected to grow, surpassing $560 billion by 2026, the number of BNPL transactions is also poised to increase significantly. This makes it a profitable opportunity for businesses to invest in BNPL by partnering with reputable BNPL providers.
One such provider to consider is Plural, a leading accredited payment solutions provider. Plural offers an impressive Affordability Suite that includes BNPL, along with various other payment options.
By seamlessly integrating the Affordability Suite into your websites and apps, your business can enhance its conversion rates, deliver a seamless customer experience, and ultimately boost its revenue and profits.Ready to reap the benefits of BNPL? Get in touch with Plural today by clicking below and start your BNPL journey!
