BNPL services (Buy now pay later) are rapidly gaining popularity around the world. With their help, the buyer can pay for the goods in equal installments within a certain period of time without commission, interest, and a loan agreement with the bank. In this article, we will consider why a BNPL service is a good choice for entrepreneurs to order a financial product development service.
Why businesses and buyers choose BNPL
BNPL is convenient for the buyer and beneficial for the seller. At the same time, services have their drawbacks and risks. Let’s look at the pros and cons of paying in installments to better understand.
BNPL for business
Advantages:
- Brand loyalty. Buyers get a quick alternative to loans and installments, which affects the choice of a company and the growth of its customer base.
- Increase conversion to purchase. With the help of BNPL, not only those customers who do not have the opportunity to spend the entire amount at once buy, but also those who can pay it in full. As a rule, such buyers share the cost of the purchase, redistributing the costs for their financial comfort.
- Attracting a younger audience that is ready to actively shop, but often does not have enough money or desire to pay for the goods in full. The BNPL service is used by 42% of the UK population aged 16 to 24. 57% of them pay in installments for clothes, 47% for equipment. 75% of BNPL users in the US are Millennials and Zoomers.
- Increase in the average check. It is easier for buyers to decide on a purchase and go through the checkout procedure to the end since a small amount is needed for the initial payment.
- During the pandemic, 59% of buyers made spontaneous purchases using payment in installments, which would have been too expensive for them without using the service.
- High turnover of funds. The store receives the entire amount immediately to its bank account, all the risks of debiting money from the buyer are on the side of the BNPL service.
- A good alternative to discounts. The company can replace promotions or reduce the percentage of the discount on goods that the buyer can pay in installments using BNPL. As a rule, the commission of the BNPL service is cheaper than discount offers.
Risks:
- An increase in the provider’s commission in the event of tightening legislation or other macro- and microeconomic influences.
- Reputational risks are associated with the actions of fraudsters who gained access to the buyer’s account. Many BNPL services take responsibility for purchases made by attackers, but buyers can blame the companies from which they made the purchase directly.
How it works?
A retailer or brand connects to a BNPL provider and pays a set fee. It can be charged at a fixed rate for each transaction or it can be a certain percentage of the check amount – it depends on the terms of the service. In return, the partner receives an increase in the average check and traffic of new customers. At the same time, the BNPL operator bears the risks of the non-payment by the buyer of any part of the payment, returning the entire purchase amount to its partner.
BNPL for the buyer
Why BNPL is convenient for the buyer:
- No interest rate. A buyer doesn’t have to overpay for the thing he likes and pay interest in installments.
- No need to wait long for the approval of the purchase amount. The operator of the BNPL service sets a limit in advance – this is much faster than applying for a standard loan or installment plan. No loan agreement or credit card issuance is required.
- Most BNPL services do not affect a credit score.
- Maximum automation. As a rule, payments are debited automatically. Clients get access to the schedule of debits, in addition, they receive notifications with a reminder of payments.
- A buyer can immediately pick up the goods or use the service. This is convenient if a buyer needs to make a purchase urgently, and there is still a week before the salary.
The risks include the fact that most services charge late fees. Therefore, it is advisable to connect auto payment and make sure that the card always has the right amount. At the same time, BNPL providers set a limit on the funds that the buyer can spend. This saves a buyer from the threat of falling into debt and spending much more than the amount that a user can return.
Another possible disadvantage is a credit history check. Depending on the amount provided, some BNPL services check the solvency of the client.
Buyers use BNPL for various purchases. 47% of Amazon visitors surveyed bought clothes using these services, and 44% bought electronics. At the same time, 20% paid for food and drinks in this way, and 15% for entertainment. Reasons why shoppers preferred installment services over credit cards:
- easier to make a payment (45%);
- more flexible terms (44%);
- simple approval process (33%).
What is the difference between BNPL and installments/loans?
The main difference is speed and simplicity. You do not need to draw up an agreement with the bank, and the services approve the purchase in a matter of minutes.
Unlike loans, BNPL is mainly used in the middle and low-price segment for goods for which the buyer does not have enough funds for a one-time payment or does not want to spend the entire amount at once. Typically, the repayment period for BNPL is much shorter than for classic banking products. The full amount for the goods is debited in 6 weeks.
Wrapping up
BNPL services are rapidly gaining popularity among e-commerce retailers and their customers. The interest is caused by the fact that BNPL is a convenient and low-cost way to borrow funds to buy goods on the Internet. If you are planning to create your own BNPL service, you should find a highly qualified team of software developers whose work will determine the security and success of the project. Aleph One is a reliable company to order fintech project development. The company takes a responsible approach to the development of technical specifications and compliance with the rules for developing applications for the financial sector.
