4 Reasons You Should Consider a Buy Now, Pay Later Option

Buy Now, Pay Later (BNPL) programs have gained popularity and availability in recent years. These BaaS programs have been found to offer more value to consumers in light of recent difficulties such as the pandemic and inflation, as buying power is dependent on changing circumstances. Many merchant retailers and medical professionals have taken notice and offer BNPL as a flexible payment option. 

However, despite its benefits, some retailers are still uncertain about the details of BNPL. 

Offering BNPL to customers can be a simple process and in this post, we will provide an overview of BNPL and reasons why retailers should consider it as a financing option.

Buy Now, Pay Later Explained

To begin, BNPL is a financing option that enables consumers to pay for a purchase over multiple payments with low or no interest. What sets BNPL apart from other financing options is that it has no impact on the user’s credit. The consumer’s eligibility for BNPL is determined through a soft credit pull, which doesn’t affect their credit score, and the payments are not reported to credit bureaus. While BNPL doesn’t have a negative impact on credit, it also doesn’t have a positive impact like credit card payments. In essence, BNPL is a customer-friendly financing option that removes many of the traditional barriers and prohibitive aspects of traditional financing options, allowing users to make larger purchases with little or no interest without risking harm to their credit score.

How Does Buy Now, Pay Later Benefit Retailers?

Undoubtedly, BNPL is a beneficial option for consumers, but what are the advantages of offering it for retailers? There are several benefits, including:

• Boost in conversions
• Increase in the average ticket size
• Increase in repeat business
• Reduction in the pressure on employees to sell finance products

Let’s take a closer look at each of these benefits and how they can impact retailers.

1. Higher Conversion

The fundamental objective of any financing option is to enhance a retailer’s profitability by broadening the payment alternatives accessible to the consumer.

One of the most critical metrics for determining profitability is the conversion rate. It refers to the percentage of people who visit a store and buy a product. According to an RBC study, retailers who offer a BNPL program generally experience a 20-30% rise in their conversion rate.

2. Higher Average Ticket Size

The average ticket size is another essential metric for determining profitability, which measures the dollar amount of sales per customer. As noted in the RBC study mentioned earlier, BNPL programs can lead to a 30-50% increase in average ticket size.

By increasing both conversions and ticket size, BNPL programs create significant revenue-generating opportunities for retailers. Furthermore, the rise in average ticket size implies a shift in buyers’ preferences towards more expensive or premium products, resulting in higher profit margins.

3. Additional Repeat Business

For any retail business, repeat customers are crucial. According to a study by Constant Contact, repeat customers are 60-70% likely to make a purchase when visiting a retailer they’ve bought from before (in contrast to only a 13% chance of a new customer making a purchase). The same study found that repeat customers also spend, on average, 300% more than new customers.

Now, how does BNPL factor into this equation? An analysis conducted by the Australian BNPL provider Afterpay revealed that up to 90% of its gross merchandise value was derived from repeat customers. This statistic can be a game-changer for any retailer, particularly those who sell premium products.

4. No Pressure to Sell Finance Products

Lastly, offering a BNPL financing option can alleviate the burden on salespeople to sell financial products such as credit cards and loans. In contrast to BNPL, these alternatives typically have several drawbacks, including higher interest rates, hard credit inquiries, and long-term repayment plans, which can discourage potential buyers.

As a result, salespeople have to put in more effort to persuade customers to purchase these financial products, leading to an uncomfortable experience for both the employee and the customer. In contrast, BNPL is a more straightforward “sell” because its benefits far outweigh the few drawbacks for the customer. Therefore, the employee-customer relationship doesn’t have to be compromised by discomfort.

A Note On BNPL Integrations

While BNPL is an excellent purchasing option for customers, as a retailer, it can create more work on the backend. Integrating BNPL into existing systems and processes is a complex task that requires engineering work, onboarding, training, and other investments of time and money, similar to adopting any other new technology.

While some third-party BNPL services integrate with major e-commerce platforms and payment processors, these services have limitations on compatible platforms and processors. This can be a significant barrier for companies that have developed their own solutions or use more niche platforms. Therefore, it’s crucial to thoroughly review BNPL options before committing to one.

Final Thoughts on Buy Now, Pay Later for Retailers

For nearly any retailer, adopting and implementing a BNPL financing option is a logical decision, offering benefits to both retailers and consumers. Increased purchasing power for customers leads to higher conversion rates, larger sales, and greater customer loyalty, ultimately resulting in increased profitability for retailers. However, implementing BNPL may require a learning curve for retailers and an investment of time and money. Despite this, the benefits far outweigh the drawbacks in this scenario.

Frank Gogol

A seasoned SEO expert, Frank has a long history of working with and for startups. Starting in mid-2018, Frank served as the SEO Strategist for Stilt, a fintech startup that provided fair loans for immigrants in the US and other underserved markets. While with the company, he scaled site traffic from zero to more than 1.5 million unique visits per month, driving the bulk of the company’s lead generation until it was acquired by J.G. Wentworth in December 2022. As employee #5 at Stilt, Frank was witness to, and part of, the successful building and sale of a fintech company, uniquely positioning him to create content for founders about all things startups.

See author's posts