Buy Now, Pay Later?

By Shane O’Neill, Vice President There’s a “new” e-commerce payment option trend that’s growing fast, referred to as Buy Now, Pay Later (BNPL). While the concept isn’t actually new, platforms like Affirm do make implementation simpler, especially for small and medium-sized businesses. The question is, is it right for your store, and could it help in growing online sales? What is Buy Now, Pay Later? In layman’s terms, it’s like traditional layaway, but you get your stuff now. I say the concept isn’t new because retailers, such as Best Buy, have been offering this for years for those who have a line of credit with them. It’s interest-free financing. Terms generally revolve around a minimum spend and 6-12 months to pay off the entire balance, interest-free. I’m not going to lie, Best Buy had me at hello! For me, as a consumer, it’s a no-brainer. Free money and I get rewards points? Sign me up. Of course, it’s not all sunshine and puppy dogs. If you don’t pay off the entire balance within the timeframe, you get hit with interest charges moving forward on the remaining balance, PLUS you’ll owe all the back interest you thought you were saving. That clip can hit you at 20% plus…whoahhhh! Of course, decisions come down to the consumer. From my perspective, it’s great for large purchases and may nudge me into buying upgrades. Plus, why would I want to drop a bunch of cash if you’re going to give me 12 months to pay you without interest? Where things start to get a little cloudy is when a consumer is buying something they really can’t afford. Fact is, some people are bad with money, and offers like this are how they get buried in debt. These types of offers are usually tied to credit cards supported by credit checks. However, that’s where the BNPL movement becomes a little more blurry. How Does It Work? BNPL works as a POS payment option on your website checkout page. When a consumer selects the BNPL option, they submit a few pieces of information and are given a real-time decision on approval, a sort of credit check. So far, so good, but there are some providers that promote “No Credit Checks”, which seems problematic. However, for this discussion, we’ll stick with the Affirm platform. Once approved, the customer can select from approved payment timeframes. Affirm then handles the payment fulfillment as customers can log in to the website or app to see their current balance and payment. Affirm also sends out email and text reminders for upcoming payments. The retailer is paid in full and is charged a small service fee, typically 2-3%, but be careful, as some can be as high as 6%. What You Should Know There are a number of benefits from a retailer perspective. BNPL provides another flexible payment option that some customers will like. It also provides opportunities to enhance your e-commerce strategy as well as lead to higher per-transaction sales as customers tend to spend more. In fact, 42% of Gen Z and 69% of millennial shoppers said they were more likely to buy if BNPL was an option, in a study by Afterpay. On the flip side, personal finance company Credit Karma published a recent study that showed 33% of U.S. consumers who used BNPL have fallen behind on one or more payments, and 72% of those said their credit scores have declined. It’s also worth noting that BNPL isn’t currently regulated the same way as credit cards, so you’ll want to take special note of the fine print and how returns are handled. Is BNPL for You? BNPL is part of emerging fintech technology and there are a lot of quickly changing aspects as it evolves, including M&A and regulatory oversight. If you’re an established online retailer, BNPL may be a good option to grow your e-commerce footprint. However, if you are just dipping your toes into e-commerce, it might be best to figure out internal logistics first before you add additional payment options. Do your own due diligence and consider how BNPL might fit into your e-commerce strategy. If the boxes all get checked, BNPL could be a great way to boost your bottom line.