22. pro 2022.
Co-Country Manager
Buy now‚ pay later (BNPL) is a payment option that allows a consumer to make a purchase and make instalment payments over time. The consumer benefits are clear – they get immediate access to a product or service and can pay for it over time.
What's in it for your business if you offer a buy now‚ pay later option? What are the disadvantages? Learn more about this popular delayed payment option and find out if it's right for your business.
When customers choose BNPL at checkout‚ they enter into a credit agreement with the BNPL provider‚ be that Klarna‚ PayPal or credit card companies. The approval process is nearly instant and usually‚ there is almost no detectable delay during the checkout process.
Klarna and PayPal BNPL schemes are interest-free as long as the customer makes the payments on time. The most common payment format is four equal payments. If they are late paying‚ then the provider charges interest and/or late fees.
Allowing customers to pay in instalments is convenient for them, but what happens if they default on payments? How does that affect your cash flow and administration costs?
The non-payment risk and payment collection work is done by the BNPL company in exchange for a fee from the business offering the service. If a customer buys a product from your shop for €100 using Klarna Pay Later, you will receive €100 minus the transaction fee of €0.30 + 4.99 percent, or around €95. Your customer will pay Klarna directly for the item in four monthly instalments of €25 each.
Other BMPL providers like PayPal , Clearpay, or Afterpay have slightly different fee structures, so it’s a good idea to check which ones fit your business goals.
Currently, the credit score of most BNPL consumers is not impacted. However, this could change in the coming months as the Financial Conduct Authority (FCA) seeks to enforce consumer protection legislation and reduce potential harm to BNPL customers. Using BNPL can be addictive and customers can quickly get themselves into a financial hole that is very difficult to get out of.
Major BNPL lenders are expected to cooperate with the FCA’s suggested changes. These could include the implementation of credit checks in the next year. Klarna will begin to report customer data to credit reference agencies.
The main reason is that customers like it and are more willing to buy when BNPL is an option. This is especially true when your shop sells lifestyle, design and other aspirational products.
Let’s look a little more deeply at the trends.
Eliminating friction in the checkout process is the quickest way to improve your cart conversion rates. Multiple payment options help, especially those like iDEAL or Bancontact which are well known to your customers. BNPL goes a step further because it removes the problem of not having enough money at the exact moment of purchase. It also removes the psychological barrier of a lump sum. An item that costs €25 four times seems cheaper than one that costs €100.
For these reasons, buy now, pay later is particularly popular around the holidays. At least a quarter of young adults in the UK made a delayed payment purchase during the Christmas season in 2021.
According to an Equifax survey, approximately 15 million UK residents regularly use BNPL services and at least 28 percent of the adult population made at least one buy now, pay later repayment in October 2021, up 23 percent from December 2020. Things are trending similarly in Western Europe as well.
Offering the payment methods your customers want is the best thing for your business. This is especially relevant if your business sells products that are not particularly unique. Businesses that compete on price or offer products very similar to other businesses may lose customers to competitors that do offer BNPL options.
Offering buy now, pay later will very likely increase customer spending. Two-thirds of UK retailers reported improvements in sales and performance metrics as a direct result of implementing a buy now, pay later option. Nearly half of all retailers reported that customers made more frequent purchases with BNPL, leading to revenue growth and improved profits.
There are two main disadvantages to offering BNPL in your ecommerce shop. One is money and the other is reputation.
Let’s talk money first. Most BNPL companies charge merchants fees per transaction based on the transaction amount and also the yearly transaction volume – the same as credit cards. A good figure for a quick calculation is five percent per transaction. If your business relies on high-margin products or invests a lot in customer acquisition, then earning five percent less per purchase is probably worthwhile. The increased conversion and customer spending are probably worth at least five percent.
For low-margin, high-volume businesses, five percent less per transaction can have a significant impact on profits.
The second consideration for not offering a BNPL option is customers' perception of your business. A significant number of people regard BNPL as predatory because it’s so easy for customers to get themselves into financial trouble. If your business’s values do not align with BNPL, then you could end up taking a reputational hit that’s not worth the increased sales. It’s a tricky subject and there are many points of view. Make sure you know what yours is before you toggle the BNPL switch on in your payment service provider (PSP).
If you’d like to add a buy now, pay later option to your ecommerce business, Mollie helps you effortlessly accept online payments from all major ecommerce payment methods, including Klarna Pay Later. Integration is simple with our plug-in and API.
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