With a new repayment incentive, buy now, pay later options to drive a new line of customers for retailers.
Many retail business owners using POS systems adopt a Buy Now, Pay Later (BNPL) payment model to reach a wider range of customers. The BNPL method has evolved largely due to changes mandated by COVID-19 and the rise in online shopping. So, what exactly is BNPL for business, and how can it help you increase profits faster? We investigate the answers to this question to assist you in getting started and attracting a new type of customer.
What exactly is buy now, pay later? Definition of BNPL
According
to Worldpay's latest figures, as reported by retail-week.com, "BNPL is now
the fastest-growing online payment method – accounting for more than 5% of all
eCommerce spending." This has caused the BNPL for businesses market
to triple by 2020, with 5 million people using BNPL since the pandemic
began."
This
payment process allows consumers to spread out the cost of purchasing goods and
services over six weeks in four equal payment instalments. The time it takes to
repay the money, and the amount of each payment instalment can vary.
At
first glance, this appears to be the same as layaway or simply using a credit
card. So, what's the distinction? One significant difference is that many BNPL
options do not include interest. Another thing to remember is that the retailer
requires the consumer to choose payment options upfront, such as six payments
on a specific date, which is predetermined with the purchase.
The
consumer payment trend was started by Swedish fintech Klarna and Australian
firm Afterpay. Other well-known financial technology titans, such as PayPal,
Amazon, and Apple, have also jumped on the bandwagon and begun developing their
forms of BNPL to keep up with the competition.
A brief history of how BNPL came to be so popular
To
comprehend what BNPL for businesses is and how it became so popular, we
must first go back. In the past, big-box retailers have used a variety of other
options, such as layaway.
These
options have largely vanished as credit card usage has increased. Retailers
adopted their versions, with store credit cards frequently pushed at the point
of sale, allowing the store to control the consumer experience and build brand
loyalty with additional purchases.
The key
elements of BNPL are typically smaller purchases, no credit check, and no
traditional underwriting. Because BNPL for businesses services do not
share user data with credit bureaus, creditors do not have access to this debt.
There
is no interest if payments are made on time, and typically 25% of the total
purchase is paid at the time of purchase, with three follow-up payments made
every two weeks. The purchaser must link a debit or credit card to the BNPL
purchase and agree to automatic payments.
How does BNPL benefit businesses?
BNPL
for businesses is a service supplier
provided by a third party that provides customers with an alternative payment
option during the checkout process. Here's a quick rundown of the procedure.
1-The customer who is purchasing from you must pass a quick
credit check.
2-The BNPL provider then pays the retailer owner (you) the
entire amount.
3-The customer must repay the third-party service provider
in instalments over time.
4-The credit check is superficial and has no bearing on the
purchaser's credit score.
The
third-party service determines the time frame and percentage of instalment
payments that the retailer integrates into its POS system. Clearpay, Laybuy,
and PayPal are among the most popular BNPL providers.
Some
providers, such as PayPal's 'Pay in 3' process, offer a set number of payments,
whereas others enable their buyers to choose how much they want to pay over
three to twelve months.
BNPL service options for retailers come in a variety of forms.
Retailers
can choose between two types of BNPL services: a merchant transaction fee loan
and a consumer interest loan.
1-Loan for merchant transaction fees
As long
as payments are made at the proper time, the customer is not charged any interest
on their overall purchase when using a merchant transaction fee. Instead, the
merchant pays a one-time transaction fee ranging from 2 to 8 per cent on
average. While this fee may deter some retailers, the option of BNPL for
businesses may result in customer acquisition, retention, and higher
purchase amounts.
2-Consumer interest loan
The
other option, a consumer interest loan, involves an interest rate being applied
to the purchase at the transaction, thereby relieving the business owner of
additional fees. This is an appealing choice for retailers, but it may be less
appealing to customers.
In
a Nutshell:
It must
be noted that the Buy now, pay later consumer repayment process is currently
unregulated, which means customers have little protection in the event of a
financial dispute.