The Advantage of Buy Now, Pay Later (BNPL)

It all started with the barter system. Now, consumers can make purchases from their phones using various payment methods such as credit and debit cards, PayPal, and even cryptocurrency. E-commerce continues to evolve, accommodating consumers who are always looking for a better and easier way to make purchases. This type of progress is necessary for the newer generation as they enter the market with high expectations. With the vast amount of purchase options, the current generation enters a marketplace of unlimited desires. However, to satisfy them all, their available balance is often not enough. Consequently, there has been a shift from "pay at the time of checkout" to the "Buy now Pay later" (BNPL)option.

BNPL is very similar to a credit card system. Sellers can buy what they want now with less of an immediate hit to their bank accounts. BNPL is usually offered to customers without interest, as long as they make their payments on time. Giving shoppers more ways to pay ensures a business is positioning itself better to close deals. Shoppers given this convenient option have been proven as more likely to make a purchase. It is undeniable that offering BNPL is advantageous, but let's look at how it works for the consumers.

A simple process is followed in BNPL. Take a customer who's purchasing a laptop, for example. They buy a laptop for $1,000 and pay 25% or $250 as the first installment payment on the day of purchase. The rest of the purchase would not be due until later, such as five months down the road. The specific payment schedule can vary depending on the purchase and the provider. The BNPL system is provided by a payment processor partner who usually holds the responsibility of following with customers to collect payments. The business itself is paid the full amount upfront.

BNPL has gained popularity because it features a simple approval process, a softer credit check, and can have no fees or interest. Shoppers sometimes add items to their cart but abandon them after rethinking their current finances. The introduction of BPNL has made purchases, both large and small, more digestible. BNPL is not just reserved for relatively high-value purchases; it is being used more and more for cheaper items too. Customers are paying for everything from clothes to food delivery in installments now. The holidays are a time when BNPL particularly shines. Customers can shop for everyone on their list while still having money left over for their monthly bills. Since the approval is usually instant, consumers can also order their gifts on time for the holidays and not wait for a credit card to be mailed to them.

A common mistake businesses make is not providing adequate payment opportunities to their prospective customers. Imagine a customer that is shopping for a laptop, a product that many stores offer online. If one business does not provide a payment method that works for the customer, the customer can easily leave and go somewhere else. They may choose not to shop there again and even discourage others from choosing it. Conversely, a business can give itself a competitive advantage by offering more ways to pay than its competitors, such as the BNPL method. Customers may appreciate the business's commitment to serving them and staying up to date with current trends.

Through BNPL, Average Order Value and Customer Lifetime Value has been shown to increase. Average Order Value (AOV) refers to how much a customer spends on their purchase. With the offering of BNPL, customers tend to feel more comfortable spending more. This is excellent news for businesses looking to increase revenue. The Customer Lifetime Value (CLV) refers to how likely a customer remains loyal to a store. Offering BNPL has also been shown to keep customers returning again and again due to its simplicity and convenience.

Compared to credit cards, BNPL offers more flexibility, customers often say. BNPL frequently doesn't make customers make payments until further down the road, such as three or five months. This is in contrast to credit cards that typically require monthly payments. BNPL also gives people who don't have a credit card a new way to make purchases. BNPL often doesn't require any hard credit check to get started, unlike a credit card, which can lower a credit score. The approval process can also be immediate for BNPL. This allows businesses to increase their chances of securing sales. Credit cards can make consumers wait to be approved. Some customers like the ability to keep things separate to stay better organized. For instance, a desk purchased using BNPL from gas and groceries purchased on a credit card. Some customers are also just looking for more credit to use. Putting purchases on BNPL frees up credit elsewhere. It's clear that BNPL has an appeal, especially to younger shoppers, and is here to stay.