Buy now, pay later: how it works and using it responsibly
February 28, 2022
Increasing conversion, sales, and delivering excellent customer experiences are the things that help make everything worthwhile for online retailers. After all, being profitable generally means being able to keep your business afloat and feel good about the future. But, of course, being a business owner also comes with responsibility. And research shows that sustainability and acting responsibly for the good of the planet and others are top of mind for many consumers.
Buy now, pay later: why shoppers like it
And here we meet buy now, pay later (BNPL). You might have read headlines or seen something online or on television, but it is now coming under more scrutiny. Why? Because – like credit cards, mortgages, and student loans – it is a form of consumer debt, or personal debts owed due to purchasing goods that are used for individual or household consumption. And, as a form of consumer debt, BNPL users’ experiences aren’t always positive. Of course, this type of borrowing isn’t inherently bad but a financial tool that needs to be used responsibly.
If you’re not yet acquainted with BNPL, it’s relatively straightforward. Customers can use it to stagger payments for their purchases, often without paying interest or any upfront charges.
Flexibility is the key word here: BNPL gives shoppers more choices when making a payment – as they can decide how and when they pay for something based on their spending power. It’s this flexibility that is helping to fuel its growth. One thing is clear: consumers like it. Our own research shows that BNPL adoption is snowballing, while other studies show that increase is especially prevalent among younger consumers.
Another key driver is the fact that most short-term consumer debt (like credit cards) are considered a suboptimal form of financing due to the high interest rates that are charged on the debt, whereas BNPL providers often don’t charge interest at all. And this adoption is also being driven by increasing awareness as more retailers offer and market it as a payment tool.
Buy now, pay later criticism
So, what are the main criticisms of buy now, pay later?
- It persuades people to spend more than they can afford
- It is not robustly regulated
- Late fees, interest and charges are not always transparent
- It doesn’t run proper credit checks
These criticisms are, in all honesty, valid. People can be tempted to spend more than they could afford by BNPL’s flexibility. Regulation is already in place in some countries – such as Australia and the UK – but not everywhere, which means there are no measures for disclosures on fees, amounts owed, credit reporting, and payments. Consumers have also reported being liable for fees or charges they didn’t understand.
Let’s look at Klarna, whose BNPL products Mollie offers as part of its payment solution. In a candid blog post, Alex Marsh, Head of U.K. for the Swedish-founded payments firm, writes: “I strongly believe BNPL is a better and more sustainable way for consumers to use credit when they need it.” Klarna doesn’t charge interest or fees on its Pay in 3 instalments and Pay in 30 days products – so consumers never have to pay more than the price of the item they’re purchasing. In fact, Marsh writes, “If you miss a payment we restrict access, and our default rate is less than 1%, which is much lower than credit card companies.”
Klarna: helping consumers buy responsibly
Klarna is a good example of how to offer BNPL products responsibly. Whenever someone makes a purchase, they make it clear they’re offering a finance product, display the terms and conditions clearly, and provide a clear and simple structured repayment schedule to help consumers manage their money. If you’re an online retailer, these are all things you can do to help keep your consumers informed about the agreements they’re making when they use BNPL.
Using buy now, pay later responsibly: a retailer’s guide
When offering BNPL products on your website, you can help make sure your customers are managing their finances responsibly. To do this, you can display:
- The full terms and conditions of the BNPL offer
- The repayment schedule in full
- Advice on not overspending
The fact of the matter is that BNPL is here to stay. It’s increasingly popular, and giving consumers more flexibility is no bad thing. If anything, many ecommerce firms now need to offer it to remain competitive, especially in the sectors where it’s most popular, including fashion, tech, beauty, and homeware. Giving your consumers all the information they need to manage their finances responsibly is no bad thing. Instead, being transparent about how it works can help build trust between you and your consumers, helping to inspire sales and leading them to return to your store again and again.
Grow your way with Mollie
With Mollie, you can add Klarna: Pay Later to your website quickly and start processing payments right away. You only pay for successful transactions with no hidden fees. Want to know more? Contact us to discover how our effortless payments solution can help grow your business, or see more ecommerce tips to level up online.