Buy Now Pay Later – How It’s Helping eCommerce Stores Grow Their Conversions by 10x ￼
So, what is buy now pay later? In an ideal situation, when a customer makes a purchase, the retailer or online business owner receives the payment before it is delivered. Your eCommerce website is getting the traffic it needs, it has conversion-optimized product pages and a seamless checkout process — despite it all, your conversion rate isn’t that high.
The question here is: with high traffic, why aren’t more visitors converting?
For many eCommerce websites, the problem lies neither with the products, brand, or web design — the problem is the pricing criteria becoming the reason for high cart abandonment rates.
With the changing business landscape and the economic downturn due to the global pandemic, eCommerce businesses need to come up with a creative way to retain their customers and attract new audiences.
Enter “Buy Now, Pay Later” — an eCommerce retailer’s secret weapon to overcome the most common sticking point for potential buyers.
Interested in implementing this feature in your eCommerce website development?
What is Buy Now Pay Later — Explained
By definition, Buy Now, Pay Later is a point-of-sale financing agreement that has gained massive popularity in recent years.
In simpler words, it is a short-term financing solution that enables the customers to pay for the purchased products in installments. The period of time to pay the installments, however, can vary on the amount to be paid for the purchased product.
Considering the definition, it is much similar to the layaway method or simply using a credit card — so where does buy now, pay later differ from them? Well, with Buy Now Pay Later, one can purchase and receive the product but pay for the product at a later time with zero interest. This is one of the biggest striking points for BNPL and a reason for its popularity among the younger generations.
What’s even better, by splitting up the purchase cost, the buyers can afford to make frequent purchases — ultimately boosting the conversion rate in the process.
So, if you are considering jumping on the BNPL train, dive into the details of how it works, why it has become so popular among retailers, and the significant benefits it has to offer.
Buy Now Pay Later — How it Works?
Buy now, pay later works as it sounds! A customer makes a purchase and pays later for it. To make it simple, here is a breakdown of how it works:
- A potential buyer adds something to the cart and proceeds to check out.
- If they choose to pay with BNPL, they will get to choose the number of installments, usually four to six, to pay over in weeks or months.
- At the checkout, the customer pays only for the first installment to proceed with the shipment of the order.
- The BNPL service provider pays for the total purchase price of the product, excluding the processing fees.
- This way, the merchant doesn’t go through any loss, and the BNPL service provider collects the installment over the dedicated time for payments from the customer.
The best part of BNPL is that the customer can buy what they want and when they want it without having to worry about paying a high amount at once. They can split the amount into payable sections that fit their budget easily.
As for the retailers, they enjoy an increased conversion rate and sales without the risk of going broke for not receiving the payments in time — that’s all taken care of by the BNPL service providers.
The process of BNPL can be said to combine the best parts of credit card payments and layaway methods without any drawbacks. In other words, it has modernized the two forms of payment for the customers living in the digital age. With BNPL, the consumers don’t have to deal with the high-interest rates of paying through credit cards, and merchants don’t have to worry about collecting the payments.
Buy Now, Pay Later — Benefits for Business Owners
Higher conversion rate
Thinking about it, there is nothing more frustrating to a business owner than a low conversion rate. While there are many reasons why a potential buyer may leave the cart abandoned, some do it due to high prices. In the end, having visitors on your site, browsing products, and adding them to the cart only to leave it at the end, only adds to it.
With BNPL, the customers can purchase their desired products without breaking the bank. It allows them to take advantage of store sales and discounts being offered at the time of purchase.
Affordable and flexible payments for high valued products
For online shops offering high-end products such as jewelry or electronic devices or customers that order in bulk, buy now, pay later can make an impact on order conversions.
In other words, by enabling the customers to pay in installments, merchants have a better way of selling their products to the market.
Generates higher order value
A report by Affirm states that retailers see up to 85% higher average order values for purchases using BNPL over other payment methods. The reason? Smaller, spread-out payments increase the customer’s purchasing power.
Think about it: if you want to buy something that costs a fortune but BNPL allows you to buy it and pay for it in installments later, you are likely to purchase the product — without thinking twice. Perhaps, it is an easy way to make high-priced goods fit within the budget!
Improved customer experience
It would be too easy to say that BNPL influences the buyer’s decisions. The fact is that BNPL works to provide a better customer experience. Offering a BNPL payment option to the customers gives them more control over their purchases and empowers their buying decisions with solid and flexible financing options.
Buy Now, Pay Later — Drawbacks for Business Owners
Charges Merchant Fees
Different BNPL service providers have different processing fees, and they charge both the merchants and customers. Compared to the traditional payment methods, BNPL systems incur higher fees — which can range from 2% to 6% of the amount of the purchased product.
Late payment penalties
A late fee is charged to the customers if they miss a payment in their installment plan. While this is something out of your control, these late fees can make the customer feel frustrated.
Depletes the credit score
Another factor to remember is that your credit score can be affected by a late or missed payment. Again, while this is not something you have control over, it does breed resentment in the customers towards your brand.
The cause of incurring debt
the good thing about BNPL is that it makes expensive things more affordable. However, this can also tempt people to purchase things they cannot afford to pay for later. In fact, research states that 46% of the BNPL users anticipate making late payments the next year of making a purchase. This can cause the customers to fall into debt and interest on purchases from your business.
Popular BNPL service providers
As the popularity of BNPL grows, you can expect to see new service providers coming forward with excellent deals and financing plans, along with credit card companies that offer similar options. However, it is good to opt for the major industry players with a solid reputation. here are four for you to consider:
Pay in 4
PayPal is a popular service provider in the eCommerce industry, offering Buy now Pay later products that have gained popularity among customers and site owners. The service provides the same protection and security as it does for other secure purchases, with the option to divide the total amount into four interest-free payments. The best part is that the customers make the decision in seconds without impacting their credit score.
As for retailers, there are no additional costs. You can add Pay in 4 and PayPal credit to your PayPal checkout as a financing option. It provides both payment options with easy integration to the eCommerce website.
Afterpay offers the buyers to pay for the purchased product in four easy installments over a period of six weeks. Since it doesn’t have any application fee or interest on the payments, it doesn’t cost the customers extra to use Afterpay — until they make their payments on time.
As for the retailers, there is a small fee they need to pay per transaction. Currently, the service charges $0.30 and a commission of 4-6% over every transaction. Other than that, Afterpay offers easy integration on major platforms, including Wix, Shopify, WooCommerce, Stripe, and more.
Klarna offers two interest-free financing options — Pay in 4 and pay in 30 days.
For website owners, it charges a fixed fee of $0.30 per transaction and a variable fee ranging from 3.29% up to 5.99%. Like the above two service providers, Klarna offers easy integrations with various platforms, including Shopify, Adobe, Wix, and more.
Affirm allows the customers to make four payments for their product in two-week installments or pay up for it for 36 months. However, they pre-qualify the customers through the buyer’s journey, so the customers are aware of their purchasing power. Besides that, it also offers 0% APR (annual percentage rate).
Like Klarna and Afterpay, affirm also charges a fixed fee of $0.30 per transaction. It also takes up an average commission of 5.99% from the retailers.
If there is one thing for eCommerce businesses is that BNPL is here to stay. It offers several advantages for business owners and adds to its competitive advantage.
Buy now pay later features present an alternative and flexible option for customers to purchase and spread payments over time — without paying any interest on the payments. So for an organization wanting to remain on the cutting edge and meet the changing customer preferences, implementing Buy Now, Pay later can work to benefit you!
Partner with tech experts at Codup. Implement Buy Now, Pay Later in your eCommerce stores today.