The concept of “buy now pay later” is something that has been in practice for ages. In modern times most large purchases like buying a house or car, or getting a college degree, are carried out in the same way, where transactions are paid off for a set period post-acquisition. With the introduction of credit cards and store-specific credit lines, this idea is applied to small-scale purchases also.
In the e-commerce market, the concept has other names like Point-Of-Sales Finance, credit finance, and many more. U.S e-commerce purchases under “buy now pay later” arrangements grew to a value of $98 billion in 2018, representing a compound annual growth rate of 24%. This shows consumers like the concept. The article discusses Buy now, Pay Later on e-commerce, the positive effects, the challenges, importance in millennials and Gen Z people, and much more.
Implementation in E-commerce Space
The implementation of Buy Now Pay Later (BNPL) takes place in four different ways in e-commerce. A brief description of each is provided below for understanding:
1. Pay in full in 30 days without interest
This is the most straightforward option. The consumer needs to pay the full amount in single traction within 30 days.
2. Pay in multiple installments, without interest or price difference
This payment option takes three to four installment payments; usually, the duration to pay back the amount ranges from two weeks to a month.
3. Pay in the short term with multiple installments, without interest but with a price difference
To make the concept clear, if we take an example, consumers can apply for the option to pay at once for $100, or they can make three installments of $37 each for three months. The latter totals $111, which means the consumer is charged an extra amount of ($11) for choosing the option to spread out their purchase. This process involves the passing of some or all the additional overhead of the vendors to the consumers.
4. Pay in the intermediate term, with multiple installments, with interest, and no price difference
The details and plans may vary from retailer to retailer, but on a general note, the period of repayment is three years or less. This provides the consumers with more choices and options to delay the payment on their online purchase.
Benefits of BNPL systems
There are several benefits of BNPL options for payments for both the customers and the businesses. These are the reasons behind the rapid growth in popularity of this payment option in the world of e-commerce. Some of the benefits are mentioned below:
To the shoppers
The main benefit for the shoppers is that they get the potential to pay no interest if the payments are made on time under the scheme they chose, or the entire amount is cleared by the time the loan period ends. This is an excellent option for unexpected and emergency purchases.
To the merchants
The merchants have more of an advantage than consumers do. They can lower down the hesitation of consumers while making an expensive purchase. The order value of the customers increases to make more significant ticket purchases. This helps improve the overall sales, open new streams, and provide a holistic and pleasant branded customer experience.
Challenges in implementation of the solutions
Just like any other technology or offering. BNPL has its own set of challenges when it comes to building strategies, execution, and growth. Some of the common challenges are:
A. The limited margin for error
Offering financial solutions means the bank’s brands need to match the standards of the product brand they are offering the finance. The bank’s brand will be held at the same standards as the consumer’s products brand. This means that the facilities provided by the bank should match the standard of the product. If executing against the standards of CX leaders like Apple or Amazon, the situation can be challenging and rewarding.
B. Management of merchant integration
Collaborating with established POS lenders is the lowest barrier to entering into BNPL but limiting potential payoff. The conversion rates vary from lender to lender but the rates increase. Strong partnership with different retailers and merchants from various industry types and the integration ability across other e-commerce platforms is crucial for long-term success.
Conclusion
The concept of Buy Now Pay Later may be ages-old but still has its charm when buying goods in the modern world. There are challenges and benefits of the financial solution, which is expected. But, the future of this type of solution is bright as it helps the consumers to enjoy the luxuries of life and benefits businesses around the world by expanding the market size and opportunities to serve new customers.
Author Bio
Allison Janney is a Sales & Marketing Manager at ChargeAfter. She would like to share content on Finance Industry like Point of Sales financing, Buy now Pay later, consumer financing & Ecommerce financing for valuable reader.
