Buy Now, Pay Later model — new trend in e-commerce

On 2021 Cyber Monday, usage of BNPL services saw a bump with revenue up 21 percent year-over-year and orders up 1 percent year-over-year according to Adobe research.

Buy Now, Pay Later (BNPL) — these words are becoming more and more common in e-commerce circles. Why this model is developing so actively and how it is changing e-commerce right now? Let’s get to the bottom of this.

What is BNPL?

BNPL can already be called a new payment method on a par with cards or cash. The Buy Now, Pay Later scheme involves three parties: the seller, the buyer, and the provider.

The payment is divided into installments in increments of several weeks without the need to borrow money from the bank or pay interest. That is, the buyer uses his own money but pays the amount in installments. The merchant gets the entire value of the goods at once — it is paid by the provider.

Why is BNPL rocking the market?

Buy Now, Pay Later is a cheaper and easier alternative to credit cards. In addition, the process for the user is clear and easy, because it is similar to a loan for goods in a regular store, but does not require the registration of extra paperwork and does not involve overpayments. Thus, this model becomes a new growth strategy for e-commerce.

The top reasons users prefer Buy Now, Pay Later services over credit cards are that it’s easier to make payments (45%), and there’s more flexibility compared to credit cards (44%); the services offer little or no interest (36%) and the approval process is easy (33%) according to C+R Research.

What benefits does Buy Now, Pay Later bring to a retailer?

The service boosts the average check by 60–70%, according to Klarna statistics, and 44% of shoppers are willing to forgo a purchase if there is no installment payment option at checkout.

According to the British financial regulator Financial Conduct Authority (FCA, the conduct regulator for financial services firms and financial markets in the UK), 75% of BNPL users are women, 25% of them are aged 18–24, and 90% are connected with fashion, clothes, and shoes.

The benefits of BNPL for consumers:

Affordability

BNPL allows for cost-sharing for a variety of needs, which was especially relevant during the pandemic.

Transparency

Millennials, the base of model users, are less risk-averse, while the BNPL model offers simple payments that are potentially easy to repay.

Convenience

The scheme is simple and convenient because it eliminates lengthy credit checks, and customers can quickly and easily get the goods they want.

What is the profit of a BNPL provider?

Companies charge a share of everything they help a retailer sell.

BNPL helps increase the average cart value and sales, which convinces retailers of the utility of using such services in their stores. Consequently, the more shoppers spend, the more profit BNPL companies make.

How does it work for buyers?

The Buy Now, Pay Later option means that the entire purchase will be paid in full by the BNPL provider. The customer is left to pay it back on a fixed payment schedule and interest-free.

Most providers charge a fee for missed payments, and the fee may increase depending on the number of missed payments.

Here’s what it looks like for the buyer:

1. The buyer chooses an item and adds it to the cart.

2. At the payment step they choose the BNPL payment method.

3. Enters personal data and binds the bank card.

4. The first payment is deducted.

5. The buyer receives the goods in the chosen way.

6. The customer then tracks upcoming payments in the app or sets up automated payments.

BNPL services are the inevitable trend of the next few years, and the main reason for their popularity is that they are convenient and easy to use. The only question is how quickly this service will become this common way of payment for all of us, just like a credit card.