A form of short-term financing known as “point-of-sale installment loans” or “buy now, pay later” (BNPL) allows your consumers to pay for items over time, frequently with no or little interest. Because they are convenient and frequently interest-free, buy now pay later payments are well-liked by consumers. Offering BNPL at the point of sale can help retailers increase average order values and decrease cart abandonment rates.
This article delves deeply into the operation of BNPL, the methods you can employ to deploy it in your company, and the benefits and drawbacks of providing this financing option.
How Do BNPLs Operate?
BNPL purchases typically function as follows for customers, though specifics will vary depending on the financing option they select:
Choose the BNPL option
A BNPL purchase begins when the customer chooses the BNPL option from a subscribing retailer at the point of sale.
BNPL will be a choice for a payment method when you check out.
Apply for approval
Customers may be subject to a brief credit check before being approved for BNPL financing; this usually takes less than a minute. Some BNPL lenders only perform a basic identity check; others demand a hard credit check.
Choose payment terms
Depending on the BNPL solution, customers will have a few different options for payment terms. But keep in mind that not all BNPL lenders provide term alternatives. Some people only have the option of one timetable, interest rate, and monthly payment.
Affirm provides a variety of payment terms.
Affirm is one of the companies that offers a variety of payment terms so that clients may pick the one that works best for them.
Pay down payment
After choosing their preferred payment options, consumers must go to the checkout to pay a deposit on their order. This down payment can range from 0% to 70% depending on the terms they chose, but it usually falls between 10% and 25%.
Benefits and Drawbacks of BNPL
Offering BNPL to your clients might have a number of wonderful advantages. However, there are other disadvantages that you should take into account, notably effects on the consumer that may change how they see your brand.
- Increases conversion rates: When retailers accept BNPL payments, their conversion rates go up by an average of 2.1 percent.
- higher order values are produced: According to Affirm, retailers observe average order values that are up to 85% higher when customers pay with BNPL than when they do with other payment options.
- Enhances customer experience: Giving clients the option to pay with Buy Now Pay Later provides them more control over their payment options, which enhances the customer experience.
- Charges merchant fees: As we discovered when comparing the various BNPL providers, each has a flat-rate merchant processing cost as well as a fee dependent on the value of the transaction.
- imposes late fees: Most service providers charge a late fee if a customer skips an installment of their payment schedule. Although this is beyond your control, these costs may make clients angry with your company.
- ruins credit rating: The decline in consumer credit scores is another aspect that can be impacted by missed or late payments. Again, while out of your control, this may build dissatisfaction among customers for your company.
BNPL services will have a significant impact on the payments landscape as we move to the future of retail. To avail a BNPL card, lenders do not have any strict restrictions on the CIBIL score online. Here, we looked at what BNPL is, how it functions, business-related solutions, as well as its advantages and disadvantages. With this information, you are prepared to begin integrating BNPL services into your transactions and beginning to benefit from them.