As an e-commerce business, the final objective is to persuade customers to hit the "purchase" button. However, in today's market, securing the sale can sometimes be difficult as consumers are often wary of spending their hard-earned money and might hesitate before increasing their credit card debt.

The good news is, even if your customers lack the funds to make an immediate purchase, you don't have to miss out on the sale. By providing a "buy now pay later" (BNPL) payment option, you can still capture those sales while offering your customers an improved shopping experience.

What does "Buy Now Pay Later" mean?

"Buy now pay later" is a type of financing arrangement at the time of purchase that enables your customers to acquire your products immediately and pay for them in installments over a specified period.

Typically, the customer will make an initial payment towards the purchase, and then make subsequent payments until the balance is fully paid. BNPL agreements are usually free of interest and do not come with any additional charges for the consumer.

How does the "Buy Now Pay Later" system operate?

Although the specifics may vary between different BNPL arrangements, they generally follow a similar process. When a customer makes a purchase from a participating retailer, they will have the option to select "buy now pay later" at checkout.

Instantly, they will receive notification of their approval status. If approved, they will make a small initial payment and agree to the payment terms. The merchant will receive the full purchase amount and promptly deliver the customer's order. The customer then pays the remaining installments directly to the BNPL provider as per the established terms.

While this payment option can seem appealing, it is not without its costs. Many providers charge retailers a fee of around 5.99%, and some may charge up to 8%. Despite the fees, some retailers claim that their sales have significantly increased since offering BNPL as a payment option. However, it is not suitable for every business, and it is important to weigh the pros and cons before making a decision.

Advantages of "Buy Now Pay Later" for Entrepreneurs

One of the most significant benefits of offering "buy now pay later" is an increase in sales revenue. This payment option can decrease the number of shopping carts abandoned on your online store and enable you to close more sales.

By dividing the payments, you make your products more accessible to a wider audience, potentially helping you to sell more high-value items and attract younger customers who may have limited purchasing power. This can also lead to a higher average order value (AOV).

In addition, offering "buy now pay later" can improve the customer experience. Consumers appreciate having control over their purchasing decisions, and flexible payment terms can empower them. Happy customers are more likely to return and make additional purchases, potentially growing your recurring revenue.

Possible Drawbacks to Consider

While the benefits of offering "buy now pay later" may seem appealing, there are some potential drawbacks to take into account. One of the most significant concerns is the cost of fees, which can reach up to 8%. However, many retailers find that the increase in sales compensates for this extra expense. It's essential to consider this cost when making your decision.

Another potential challenge is integrating the "buy now pay later" payment option into your existing sales system. The tools and technology required may incur additional costs, and you may need to hire an e-commerce website expert to assist with setup.

It's important to keep in mind that not all businesses are eligible for "buy now pay later." BNPL providers usually vet the businesses they work with and have minimum criteria that must be met. If your business doesn't meet these criteria, adding "buy now pay later" to your checkout may not be an option. Certain industries, such as gaming and tobacco, are also ineligible to participate.

Advantages for Customers with BNPL

Customers appreciate the opportunity to instantly obtain the products they desire without paying the full amount immediately. This can be even more appealing if the BNPL provider offers interest-free financing, which can be more desirable than using a credit card.

Usually, the BNPL providers perform only a soft credit check, which will not have any effect on the customer's credit score. This could be beneficial for those who have been denied other financing options due to credit problems.

Potential Drawbacks for Customers

Although BNPL offers instant gratification for consumers, it's crucial for them to exercise caution when taking on debt that is not secured. Using BNPL can result in a buildup of debt, creating financial difficulties.

Additionally, BNPL does not contribute to building good credit, and it lacks the rewards and benefits that are commonly associated with traditional credit cards. If a customer decides to return a purchased item, there may be a delay in processing the refund, and they will need to continue making payments until the matter is resolved to avoid being considered in default.

How to Incorporate BNPL into Your E-commerce Platform

To start offering BNPL, you'll need to select a provider and enroll with them. Then, you'll follow their guidelines for integrating the payment option into your online store.

Once you're all set up, it's crucial to make your customers aware of the BNPL option early on in their purchasing journey. This increases the likelihood that they will take advantage of it. Placing the option on a product page can help facilitate purchases that a customer may initially feel are beyond their budget.

When selecting a BNPL provider, it's essential to perform thorough research and comprehend their terms and conditions. Ensure the fees involved are both affordable for your business and fair for the customer. Choosing the wrong provider could negatively impact your reputation, so take the time to carefully evaluate your options.

Leading BNPL Providers to Consider

With the increasing popularity of buy now pay later, many new providers are entering the market, including credit card companies that provide similar services. However, it is advisable to start with the established players who have already established a strong reputation. Here are some of the most prominent providers that you might want to consider:

1. Klarna

Klarna offers flexible financing solutions to customers through its Pay in 4 and Pay in 30 Days options. These financing options come with zero interest.

For merchants, using Klarna entails a flat transaction fee of €0.10, along with variable fees that can range from 1.35% to 4.99%. The platform provides seamless integration with popular eCommerce partners such as Shopify, Adobe, Wix, Stripe, and others.

2. PayPal's Pay in 4 Offering

PayPal is a well-established player in the eCommerce industry and its Pay in 4 offering is favored by both consumers and retailers. It's supported by the same protection and security as other PayPal transactions, and gives customers the ability to pay for their purchases in four interest-free installments. The credit evaluation is done quickly and does not affect the buyer's credit score.

As a business owner, you can opt to include both Pay in 4 and PayPal Credit in your PayPal checkout, providing two instant financing options for your customers. A key advantage of using PayPal is that there are no extra costs involved. Both Pay Later options are included in your existing PayPal fee. Additionally, PayPal offers a seamless integration that integrates dynamic Pay Later messaging throughout your online store.

3. Afterpay

With 19 million customers worldwide, Afterpay is a well-regarded option in the buy now pay later space. It allows buyers to divide their purchases into four installments over a six-week period, without incurring any extra costs, as long as all payments are made on time. However, merchants must pay a transaction fee of $0.30, as well as a commission of 4% to 6%. Integration with major platforms such as Shopify, WooCommerce, Wix, Stripe, Magento, and more is straightforward with Afterpay.

Assessing BNPL for Your Business

The popularity of buy now pay later financing has surged in recent years and shows no signs of slowing down. Offering this option can provide numerous benefits to online retailers, and not having it may put your business at a disadvantage compared to competitors.

Before integrating BNPL, it is crucial to thoroughly evaluate the provider and consider any fees involved. You also need to make sure that the provider will integrate seamlessly with your current sales system.

Consider consulting with an e-commerce expert or seeking business advice to determine if BNPL is the right fit for your business. Once you have taken these steps, you can enjoy the many advantages that BNPL has to offer, including increased sales and improved customer satisfaction.