BNPL or Buy Now Pay Later is a term you should have come across by now. But do you know what is it? And how incorporating it into your e-commerce business can help? Well, we’ll explain. BNPL is a fairly new short-term financing method. Much like credit and as the name suggests, a consumer buys a particular good now and the payment is delayed to a later date.
This Buy Now Pay Later method is one that is gaining popularity in shopping online. Where when retail offers this option the customer can pay the amount with interest-free installments. Generally within the span of 2 weeks or up to a month. Therefore, making this a convenient mode of payment for the consumers.
What is Buy Now, Pay Later?
In this mode of payment, a consumer can buy a product with a small down payment and pay off the balance amount in installments. This can range from two to four installments as per the customer’s convenience. Although there is no applied interest, failure to make the installment might cost a penalty fee. To avail of this mode, a consumer would need to provide basic personal information. This includes name, email address, date of birth, and billing address. This is unlike a credit card, where a customer is required to give a lot of personal information. For a credit card, an applicant has to also undergo a credit check before being eligible for the card.
Currently, there are companies such as Amazon Pay Later, Paytm Postpaid, and Flipkart Pay Later all offering this option to their customers. Not just for expensive buys but you can offer the BNPL payment mode, to your customers, for everyday items like homeware, apparel, and more.
How does Buy Now, Pay Later Work?
BNPL mode is a hybrid among the debit and credit card systems. Yet with the basic working concept in place, the program offered is different. Besides having a fixed repayment schedule that is constant for all, each company has different sets of terms and conditions in place.
In general, this is how BNPL works:
- BNPL companies have tie-ups with various retailers who offer this installment mode of payment. Which any of your customers can opt for during check out.
- After the customer proceeds to fill out their personal details, they can choose the installment period.
- Moreover, they can have it directly deducted from their debit card, bank account, or even credit card. Customers can also pay via a cheque or bank transfer.
- With an algorithm in place, the customers will be notified within seconds if their BNPL request is approved.
- Here the customer would have to pay a small sum for the overall purchase as the first installment. And have the product delivered to their doorstep.
- As per the agreed installment terms the customer would have to make payments at later dates.
Advantages of using Buy Now, Pay Later
1. Potential to Increase Sales
There has been researched proof that when customers who are offered the buy now pay later mode of payment they are more likely to choose this mode of payment. As seen, the usage of BNPL in the e-commerce market has a 20% increase in conversion rates and a 60% increase in average checkout value. This is mainly because the consumer can spread out the payment giving them the chance to purchase an item with the confidence that they can pay it back in a lump sum.
This technique is particularly handy for those customers who are short of cash before the next payday. Furthermore, this makes the purchase of higher-priced items much more affordable therefore increasing the chances of a higher conversion rate. This makes BNPL a tool to convert window shoppers to paying customers.
2. Helps Build Trust & Loyalty
BNPL attracts more customers to purchase and commit to a product.
- Since you are offering an indirect trial period without having to fully commit to the product.
- The customers can receive and approve the product if it is up to their liking.
These points help to build a brand in the eyes of your customers. Hence enabling them to trust you and the goods sold by your business. Analyzing the short term you might incur a few return charges. But if you analyze from the long term, you will have a loyal customer base built on mutual trust and understanding; profiting both parties.
3. Decrease Cart Abandonment
While analyzing your business sales strategy, cart abandonment will be an issue your company has to deal with. The few main reasons behind cart abandonment as per Baymard Institute are:
- High shipping fees cause a 50% loss of customers.
- 28% of customers are lost because they need to sign in
- 21% of customers don’t want to deal with the long checkout process, which includes the time period where they may need to fetch their card for payments
- Lack of trust in credentials caused around 17% of the customer base to abandon their cart. Giving them an option of BNPL bolsters their trust.
- 6% of customers backed out because the payment options weren’t satisfactory.
Just adding the option of BNPL to the payment options available can substantially decrease the cart abandonment issue. Furthermore also note that with BNPL your customers wouldn’t have to fill in card details and can easily place their order anywhere, on the go conveniently.
4. An Alternative to Credit Cards
When thinking of credit, customers think of the high interests and possibly incurring debts. This is the reason why most people are giving up the credit card system. In fact, BNPL is much more easily accessible to customers. As you can avail credit with a single tap. Furthermore, it even operates with transparent processing and instant repayable settlements.
That being said, with the BNPL credit system in place customers will have much more efficient and interest-free credit. As with this payment, option buyers can avoid high-interest rates and other issues associated with using a credit card.
5. Instant Sign-up Process
Applying for a credit card requires a lengthy process: Like selecting the best card for you, filling out paper-works, submitting documents, and then actually waiting for the process to be completed and for you to receive the card. This can make new potential credit users hesitate to complete the long process.
More so when offered with an easier system. Here without any prior filing customers can simply opt for the BNPL credit option. Since this payment mode can be approved without a long wait. Makes it more instant, and easy, and there is a credit system at your customer’s disposal.
Disadvantages of using Buy Now, Pay Later
1. Incur Higher Merchant Fees
As a merchant, you are aware that while setting up online modes of payment you and your customers are charged a small fee by the company providing the online mode of payment. For traditional digital payment methods like using debit/credit cards, bank transfers, or cheques; a merchant would be charged around 1.4% – 3.5%. However, with BNPL the charge is higher since it is between 2-6% of the purchase amount.
From a business point of view, this might not be as appealing as considered. Besides this, the BNPL service provider does charge the consumer as well. Therefore, making this along with the fees paid from the merchant the source of their income and success.
2. Dealing with Integration Challenges
Adopting and integrating newer technology requires assistance. By integrating BNPL too it is no different. Your website will need technical assistance to integrate this payment mode, and also ensure it is tested and good to go. To do this you would have to shed out some cash to ensure you have a convenient and smooth functioning website.
Furthermore, the technology used for embedding the BNPL payment gateway costs the merchants to be paying more. This is why experts recommend merchants use other third-party BNPL providers in comparison to banking institutions. These BNPL providers offer the same service at a lower cost. For a list of third-party BNPL service providers, see below.
3. Accreditation Challenges
About 60% of consumers have stated that they would opt for point-of-sales financing options in the near future; in a McKinsey and Company report. Makes this mode of finance more captivating to the merchants. Although this payment gateway might seem great for your business, as a merchant you must be aware that your business is able to meet the criteria set down by the BNPL provider. Certain businesses like those dealing with tobacco or even gaming companies cannot avail of this financing option. Therefore make sure your business adheres to the requirements.
4. Increased Consumer Debt & Product Returns
Being tagged as a consumer-friendly payment option, the customers have the liberty of purchasing products, they tend to over-buy. This could lead to an increase in failure to pay the installments. In turn, tarnishing the consumer’s credit scores and therefore rendering the consumers ineligible to opt for this payment mode.
Moreover, this would simply increase the return rate due to the customer being unable to pay the installments. Besides this, as a customer isn’t paying the whole amount in case of a minor defect or problem they would be returning the product much more frequently than the traditional payment methods where they pay the amount in full, in one go.
BNPL Players in the Market
There is a growing demand and a massive potential for the “buy now, pay later” payment gateway. Some of the major banking institutions have been offering such services to businesses. Yet opting for third-party applications can prove to be beneficial. Namely, some are:
1. ZestMoney
This is one of the faster-growing fin-tech in India. ZestMoney is easy and convenient to use. Providing its uses with interest-free installments. Currently, this firm has over 6 million registered users. A few unique features for ZestMoney:
- This app uses mobile technology, digital banking, and AI (Artificial Intelligence) to avail a loan/credit to its users.
- ZestMoney allows installments to be paid up to six months for some merchants.
- Can be used for bigger purchases like furniture, flight tickets, electronics, and more.
2. LazyPay
LazyPay is operated by PayU Finance, and PayU is the parent company owned by Naspers. Having an active user count of around 2 million as of 2020 and is also available on almost 250 Indian websites. Features to note:
- Users can make purchases with just one tap. These can be paid back within 15 days or on equated monthly installment (EMI) basis.
- The firm also offers loans up to INR 100,000.
- Moreover, this is all done with minimal documentation.
3. Flexmoney
Flexmoney operates with InstaCred to enter the Indian BNPL markets. As it Claims to have a partnership with over 3800 merchants in India, therefore, making it easier to avail credit. This is how Flexmoney/ InstaCred works:
- InstaCred allows flexible payment options, via EMI or full payment in a few days.
- The firm allows banks and willing lenders to offer lender-branded financing options to online platforms.
- Functions by disbursing lenders to the market reaching a wider audience enabling access to the BNPL market to grow by connecting them with online merchants.
4. Paytm Postpaid
The well-known digital payment system, e-commerce, and finance company Paytm entered the Indian BNPL markets in 2019. Offering their postpaid services, that has a longer repayable period. Paytm Postpaid option has been made available to more than 500,000 online websites as well as offline stores. However, be aware that Paytm has a convenience fee to be paid that ranges from 0 – 3% of the net monthly spending. Following is how this postpaid service works:
- Paytm Postpaid users can purchase items and pay the balance the next month.
- On the 1st of every month, you have bills generated that can be repaid by the 7th of the same month.
- Customers have credit access of around INR 100,000 each month.
5. PayLater by ICICI Bank
Offered by ICICI bank, a trusted banking institute. Therefore customers can avail a 45 days credit period for every purchase made. After the completion, the amount will automatically get deducted from your ICICI bank saving account without any interest. In case of insufficient balance to cover the payment fixed late payment charges will be imposed.
6. FlexiPay by HDFC
HDFC bank brought FlexiPay to the BNPL markets where you can purchase anything you might need from electronics to apparel. If you have an HDFC debit card you are eligible to avail of this option and the account will be debited from your account.
- This service is offered for a time frame of 15- 90 days. Where you can make purchases as you please any time of the day.
- You have up to 15 days no extra charge period. For days that follow you would be charged a nominal charge per month.
- The amount you can avail of is Rs. 1,000 up to Rs. 60,000 instantly.
7. Amazon Pay Later
Avail instant digital credit from Amazon as they offer the Pay Later functionality. Once you set up your Amazon Pay Later account you can use these easy EMI options ranging from 3 to 12 months without any credit card details. You can use this option to even pay your utility bills. In case of missing the payment on the due date, you are provided with an extra 3-day’s time to manually pay the amount after will you will have a late payment penalty of up to ₹ 200.
8. Pine Labs Pay Later
By using this, the purchase of any big buys can be done with the Pay later EMI. Offering a wide variety of payment plans directly on your device. Besides this, you can connect any debit card from major issuers and have the amount debited from the respective account.
9. MobiKwik Zip
MobiKwik Zip enables you to make any sort of payment with a credit amount up to Rs. 30,000. If you go ahead pay your credit bills on time you have no interest charges added to your amount. Furthermore, timely repayable of credit bills enables you to get a higher credit score and better your chances to acquire credit in the future. And all this with minimal documentation.
10. CapitalFloat
Enable your business to flourish by providing BNPL financing option that allows customers to apply for credit at checkout. Ensure customer satisfaction as they can easily repay the credit amount through EMIs. With more than 2000 Crore GMV you can assure you will be in safe hands. This firm also allows you to set up auto monthly repayment via your bank account.
11. Razorpay
Razorpay allows your customer to pay later as they opt for Pay Later service which is offered by various third-party service providers. The credit is offered to the merchant from the various providers that the customer is registered with.
12. Simpl
With one tap this app’s users can pay for any purchases made. Since 2015 till date, Simpl has partnered with more than 4500 merchants and has more than 7 million users. Growing immensely during the COVID situation. Using this app is easy:
- Make an account with the mobile-friendly app and use it to make BNPL payments.
- All your online purchases are consolidated into one list on your account.
- The amount of these expenses needs to be paid every 15 days.
- No interest will be charged by the firm for any expense.
- In case of defaulting any payment, the company charges a penalty.
Buy Now, Pay Later on the Rise
The global pandemic hitting the businesses and the growth in e-commerce businesses gave rise to online payment modes ‘buy now pay later’ being one of them. Research proved that BNPL in India has a massive opportunity. And is going to grow almost 65.5% annually to reach US$ 1.1 billion by the end of 2021. McKinsey states that “BNPL players are likely to originate about $90 billion annually by 2023. That will generate almost $4 billion to $6 billion in revenues, not including revenues from other products they will cross-sell.” As of now, discretionary-spend categories have the upper hand; items like apparel and footwear, fitness, accessories, and beauty products. However, the whirlwind is simply taking form and starting to make place for larger players with newer categories. Therefore, adopting this method might just make it the turning point of your business.
