The Rise of Buy-Now-Pay-Later Payments and Why Businesses Need to Adapt

• Offering customers extra convenience and flexibility in payments is a major competitive advantage
• Buy-Now-Pay-Later plans are rapidly increasing in popularity for purchases of all product types
• Businesses need a payment processing system that can quickly set up automatic recurring payments

There are many ways that businesses can add value for customers and incentivize them to make purchases, and the option to pay in instalments is very appealing for consumers. Adding buy-now-pay-later payment options helps attract new customers, increase customer satisfaction and raise consistency in cash flow for businesses.

When businesses consider what types of payments they intend to accept, they often think first in terms of payment methods such as cash, credit cards, and digital wallets. However, another important consideration they must make is whether or not they are willing to allow customers to pay in instalments, rather than all at once. For some businesses, such as those who handle large purchases like vehicles, home furnishings, or high-end electronics, this is a fairly standard option for customers. It’s also common in industries like medical insurance, home maintenance, and personal finance. Interestingly, what’s been happening in recent years is rapid widespread adoption of incremental payment processing options for smaller purchases across an incredibly diverse range of businesses and industries.

The reasons for this shift are numerous, and it’s important for forward-thinking companies to consider how these buy-now-pay-later (BNPL) plans may fit into their business model. Taking advantage of BNPL payments can be a very smart move for businesses to gain market share, increase profitability, and deliver higher levels of customer satisfaction. First, let’s take a closer look at BNPL payments, and how they work for most businesses.

What are BNPL Payments?

In simplest terms, buy-now-pay-later payment processing allows customers to obtain products and receive services now, and pay for them at later dates. For example, when purchasing a new HD TV from a big-box electronics retailer, customers may be presented with the option to either pay the full purchase price, or spread out the cost over multiple smaller payments. These payments are often automatically charged to the customer’s credit card on file, or financed through a third-party bank or financial institution for direct withdrawal from the customer’s bank account. Contracts for payment plans are usually spread out over several weeks or months, with predetermined payment amounts agreed to before the purchase is completed.

Typically, there are financing charges or interest fees associated with BNPL payments. However, there are many instances where businesses will offer instalment payment plans at no additional charge or with zero interest as an added incentive. Historically, instalment payment plans have been associated with big-ticket items like furniture, computers, or jewelry. They are also common for those purchases that are simply too large to reasonably expect customers to have the funds available in one lump sum, such as vehicles or real estate. Because of the large dollar values of these purchases, a great deal of regulation is applied to these types of payments. This is in order to protect customers from over-extending themselves financially, as well as protect financing organizations from experiencing high levels of payment failures and defaults.

Why is Demand Increasing for BNPL Payments?

In recent years, there has been a notable trend of companies offering the convenience and flexibility of BNPL payments to customers for an increasingly diverse array of products and services. Even though the dollar amounts of these purchases are much lower than those associated with vehicles or homes, they are usually still high enough to make them significant purchases for the customers. Home appliances, personal electronics, and travel-related purchases are just a few examples that are now being offered by many businesses with BNPL payment options. This trend continues to show signs of acceleration, with even more products and services featuring instalment payment plans.

From a customer’s perspective, the advantages are clear. They are able to acquire the products and services they want right now, regardless of whether they have the available cash or funds on hand at that exact time. It also makes managing their cash flow much easier, as instalment payments of $20 per month for a year is generally more manageable for most people than a single expenditure of $240 at one time.

Getting approved for a buy-now-pay-later plan is also easier now than it ever has been. In fact, many customers can get their financing plans approved instantly using online applications. Smaller dollar values on these types of purchases also makes BNPL far more accessible to a larger group of people, as the lower payment increments are less likely to have any kind of negative impact on their overall credit to asset ratios.

Another factor driving increased popularity for BNPL payment processing is the preference for these options among Generation Z and Millennial consumer segments. With the gap between wages and cost of living wider today than in the past, disposable income isn’t as readily available for most people as it once was. These demographic segments also are more wary about accumulating consumer credit card debt. This means that more manageable payment options can be a major incentive to make a purchase that may have otherwise been difficult for certain customers. Thanks to BNPL payment methods, the products and services customers want are much more attainable.

Business Advantages of Offering Buy Now Pay Later Options to Customers

Among consumers, the appeal of BNPL plans continues to grow as more and more companies choose to offer these types of purchase options. This increasing demand means that BNPL options are rapidly becoming major competitive advantages for many businesses. The benefits don’t end there, however. Companies are also leveraging BNPL payments as a marketing tactic, presenting these options to customers at earlier stages in the sales cycle to increase the incentive to purchase. While some customers may be apprehensive about committing to a purchase of several hundred dollars at the time, a BNPL option makes things far more appealing as it suddenly doesn’t have the same immediate financial impact.

Offering BNPL payments alongside a diverse range of payment methods works to the advantage of the business by appealing to a larger customer base and attracting new customers. Furthermore, those new customers are more likely to have a higher average order value as instalment plans make it easier to get more products in a single purchase and spread the cost out over a more manageable period of time. This is particularly relevant for premium brands, as price-conscious consumers can be more effectively enticed with low payment instalments.

Customers who prefer the option to pay for products and services using a BNPL plan also tend to have greater loyalty to businesses who offer this as an option. In general, customers prefer to shop at businesses that are accommodating to their needs and wants, and so BNPL can increase repeat purchase frequency and strengthen customer loyalty.

Accepting BNPL Payments at Your Business

 There are different ways that businesses can process payments under buy-now-pay-later plans. Businesses can choose to set the payment terms themselves and take on the responsibility of managing the recurring payments directly with the customer. While this approach offers the greatest level of control over the terms of the agreement and the timing of the payments, it also carries the greatest risk to the business. Because of this, many companies look to financing partners to help mitigate the risks and simplify the approval process for customers.

The simplest way to enable buy-now-pay-later payment processing is to leverage a third-party financing company with apps that can be integrated directly into your business’ POS system. While there will be pros and cons with each in terms of fee structures, approval process, and flexibility in program setup, they can all be enabled for both online and in-store purchases. Whether your business operates entirely online with an ecommerce platform, in physical retail locations, or uses a blend of both, BNPL can be offered to customers in all of these instances.

Configuring your POS solution or e-commerce payment processing system to handle BNPL payments will need to involve your merchant services provider to ensure proper integration and setup. Older point-of-sale systems may not have the capability to have new apps added on to enhance their functionality, so it’s important to get professional guidance from your trusted payment processing experts. Modern app-enabled payment processing systems, like those from MONEXgroup, can be set up to accept BNPL payments quickly and easily. Customers will then be able to apply for BNPL plans directly at the time of checkout, with rapid approval processing and no long waits.

If you’re not sure if your existing POS solution can be upgraded with buy-now-pay-later apps, contact the team here at MONEXgroup today for a no-obligation consultation and to get a free quote on how your business can start accepting BNPL payments. We offer a wide range of powerful point-of-sale solutions for in-store retail applications, online e-commerce platforms, mobile payment processing, and unattended payments. Our clients receive dedicated customer service and support, along with expert technical assistance to help answer any questions and provide smooth and easy integration with BNPL providers. Take advantage of the many benefits with MONEXgroup has to offer; contact us today!