Adding Buy Now, Pay Later To Your Website: Does It Help Or Hurt Your Bottom Line?
Offering an easy way to finance purchases may lessen the "pain of paying" for customers who are on the fence, reduce cart abandonment on your site, and ultimately lead to more profitability.
If you’ve arrived at this post, you’ve probably had a lot of online shoppers reduce the number of items in their cart at checkout, or abandon their cart altogether. While some people are definitely just window shopping, others get all the way to the payment screen before realizing that they can’t justify spending a huge chunk of money at once.
There are a few easy ways to reduce the amount of shock shoppers experience at checkout: lower your prices, offer discounts, or package the sale in a way that’s easier for shoppers to pay off.
Of course, no business owner wants to even think about slashing prices. Discounts may increase your number of sales, but they also reduce profits in the long run.
Offering a buy now, pay later option at checkout might be just what your business needs to increase sales and retain a loyal customer base – without hurting your bottom line.
Table of Contents
What Is Buy Now, Pay Later?
Buy now, pay later (BNPL) is a payment option that allows shoppers to purchase an item now by paying a percentage of the total cost upfront, and paying for the rest of it in installments over a set period of time.
Will BNPL Increase My Sales?
Simply put, the benefits of BNPL motivate customers to complete their transactions, which ultimately increases your sales numbers.
In a survey about why consumers are increasingly using BNPL, PYMNTS.com identified the following reasons among 7,024 respondents who preferred using third-party BNPL financing options such as Affirm over other payment methods:
- Allows Buyers To Spread Out Payments: Instead of paying upfront or paying off a minimum credit card balance every month, buyers get to choose how they would like to spread out their payments. Buyers are coming to expect that level of flexibility, especially when it comes to online shopping.
- Easy To Use: Third-party BNPL tools offer customers a simple checkout experience. For example, if you add an Affirm short-term loan payment option to your online store, Affirm users can complete a purchase with three clicks. Just like that, the friction of finding and entering payment information is gone.
- Helps Consumers Budget Monthly Expenses: Customers using BNPL know exactly how much to expect in BNPL installments each month. They budget in this bill just like every other bill. Compared to a volatile monthly credit card bill, BNPL installments are much easier to plan for.
- Trust In Payment Method: Depending on what kind of BNPL system you use, customers may not have to put in debit or credit card information. They can simply use their BNPL provider login information, and complete their purchase.
- Could Not Afford The Purchase Without BNPL: A lot of your potential customers already want your products, but just can’t pay the entire bill upfront. If you don’t ask for the entire payment upfront, you open up an entire pool of customers ready to make a purchase.
- No Hidden Fees: Unlike many credit card companies, BNPL companies are extremely transparent about any fees associated with a purchase. For example, at checkout, Affirm tells buyers exactly how much they will pay in interest (if any.) They show buyers their interest as both a percentage of the purchase and an actual dollar amount, so they understand exactly what to expect.
- Opportunity To Build Credit Score: BNPL options are technically a loan. Paying back these loans gives buyers a chance to build their credit in a low-stakes way.
BNPL also works from a psychological perspective. Offer the option to pay less upfront, and you reduce the initial “pain of paying” that normally causes people to empty their carts.
Finally, given how quickly merchants are adopting this payment option, your customers will grow to expect a BNPL option at checkout.
- Related: Adding a BNPL option at checkout is one of many things you can do to prevent and reduce online shopping cart abandonment.
BNPL Apps Address Buying Trends In Millennials And Gen Z
By the end of 2022, 37.2% of millennials and 44.1% of Gen Z buyers aged 14 and over will have used BNPL services at least once within that year, according to Insider Intelligence. There are several factors driving these age groups towards BNPL solutions.
Millennials and Gen Zers are coping with the stressors of economic crises while trying to establish themselves professionally and financially. They may be in the midst of paying off student debt or looking for stable work. In any case, BNPL services offer them a way to purchase items they normally wouldn’t be able to afford.
Younger buyers are also in favor of online shopping, digital wallets, flexible buying options, and instant gratification. With BNPL, you’re offering younger people the kind of shopping experience that turns first-time buyers into lifelong customers.
- Related: Still not convinced that BNPL is the purchasing option of the future? Check out our post, 6 Need-To-Know Buy Now, Pay Later Statistics For Small Businesses.
What Will BNPL Cost My Shop?
When it comes to collecting payments over time, you can collect payments yourself, or adopt a third-party customer financing solution. There are benefits and drawbacks of running a customer financing program yourself, but in general, it’s easier for small and medium businesses to adopt a third-party BNPL solution.
With third-party customer financing, you can offer BNPL options to your customers without the financial risk that comes with loans. Instead of paying you directly, customers pay the third-party company in installments. The third-party company pays you upfront, in full, and assumes all financial risk.
BNPL providers collect a certain percentage of sales made through their service, as well as a flat fee for every transaction that goes through their payment service. Various factors may influence the percentage fee on any given transaction:
- Transaction Amount: Some BNPL providers reduce the percentage fee on larger orders.
- Payment Timeline: Some BNPL providers, such as Klarna, offer several ways for customers to pay. If a customer chooses an option with a shorter payment timeline, there might be a larger fee.
- Transaction Type: For example, Square Installments charges merchants a 3.9% processing fee for point of sale and online transactions made through their service. There is only a 2.9% processing fee on invoice payments, though.
To learn why and how to offer Square Installments to your customers, check out How To Use Square Installments To Offer “Buy Now, Pay Later” Options For Your Customers.
How Does Buy Now, Pay Later Work For My Customers?
Let’s say you decide to add a BNPL like Klarna to your online store (read our comprehensive guide on Klarna for business to find out whether it’s the right BNPL solution for your small business). Among all the usual payment options at checkout, your customer will see that they can break up their payment into installments.
Your customer signs up with their phone number, email address, and a valid payment method such as a debit card. Typically they can sign up without leaving your site’s checkout page, which simplifies the checkout experience. They choose their payment time frame out of the ones provided and complete their purchase. Instead of paying you directly, they pay through their BNPL account. Existing users can check out with one click.
Most installments are on an automatic pay schedule, but customers can pay off their bills early if they want to.
The service provider performs a soft credit check on buyers if they decide to pay in four interest-free installments, pay in 30 days, or apply for monthly financing.
This signup and payment process is pretty standard across BNPL solutions. However, factors like interest rates, credit requirements, return policies, and late fees vary depending on the provider.
How Do I Add Buy Now, Pay Later To My Checkout?
All the best buy now, pay later service providers make it easy to add their payment processing option to your online store. Practices may vary from company to company, and most BNPL providers differ slightly in terms of:
- How quickly you receive sales payments
- Handling customer returns
- Who is responsible for customer service
- Handling any customer disputes or fraud
- Dealing with defaulted payments
Make sure to read up on all these practices, and ask any questions you have, before dedicating yourself to one BNPL provider.
The exact process of adding a BNPL option to your website will vary depending on the provider you choose.
First, check to make sure you’re qualified to use the third-party BNPL solution you’re interested in. For example, companies selling tobacco, medication, or firearms are not automatically eligible to use certain services. If you are unsure whether your business is eligible for a BNPL solution, contact the provider and ask.
Next, sign up as a merchant. Your BNPL provider will ask you some high-level questions about your business: where you operate, your annual sales, your majority holders, etc. Once your business is verified and you are approved, you’re ready to go.
Finally, integrate your BNPL solution into your website. If you use a major eCommerce platform like WooCommerce, Shopify, Magneto Commerce, or BigCommerce to power your store, many BNPL providers may already have a ready-to-go solution (i.e. a plugin or app) built for you. If your site does not run on a supported platform, there’s probably an API you can connect to. Usually, the BNPL provider’s customer support will be on standby to help you through the process, if you need it.
To find the best BNPL apps for your business, check out our post, Best Buy Now, Pay Later Apps To Offer Your Customers. Good luck!