Thank yourself later for starting a buy now, pay later program

March 26, 2021
Tim Peckover
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Every day more brands are coming online. Some are moving to the world wide web out of the necessity of pandemic lockdowns, with others are launching as DTC ecommerce brands. Alongside that trend, the concept of the branded, in-house credit card of yesteryear is beginning to fade. Can you even think of the last time I signed up for one, even pre-pandemic? 

What is buy now, pay later, and how does it work?

While the concept of in-house credit cards is fading, the value isn’t ultimately going away. In its place is the option for ecommerce brands to offer a different sort of financing. Buy now, pay later (BNPL) platforms enable customers to spread the cost of their sale out across a pre-determined number of equal payments. Some offer nearly zero percent financing, while others add a premium fee for the convenience of not paying in a single lump sum. 

“In the past year, we have seen a dramatic shift in retail. This shift has led to an accelerated evolution of digital and alternative payment methods. As unemployment and fear of credit rise, the ‘Buy Now, Pay Later’ option has skyrocketed in adoption rate - becoming the ideal solution for safe spending during a crisis.”
- Kevin Wild, Head of eCommerce Partnerships, Sezzle

Getting instant qualification has also helped speed up the use of the new payment method. Customers are happy to avoid waiting days or even minutes to find out if they got approval for the credit. With a couple of clicks and some brief information, shoppers can check themselves out in nearly no time at all. Plus, with some providers, once you’ve got an account, that credit is rolling. That means that you don’t have to reapply for credit each time, making future checkouts that much easier. 

Why you definitely should use them 

As a consumer, it can feel like there’s nothing worse than loading up your shopping cart only to get to the checkout and have it be more than what you had planned. With buy now, pay later, you don’t have to let a single large order price stand in your way of enjoying a shiny new thing.  If you’re a savvy budgeter, it can make big purchases more affordable in the long term without having to pay an arm and a leg for financing. 

Providing a buy now, pay later option for your customers can significantly benefit your business. Your customers will thank you, but so can your bottom line. 

Everybody likes more orders 

Using buy now, pay later will almost definitely increase the number of orders your store receives. This sales boost can happen for a couple of reasons.  

Many of the BNPL providers offer some sort of brand discover tool on their websites. Most of these tools are searchable and have filters to help you find the type of store you’re looking for. The best part is you can know beforehand that they offer a BNPL option to make the checkout process even easier. 

Whether you’re a small up-and-coming brand or a national or global retailer, discovery tools make it easier for shoppers to learn about your brand. The sooner they know that you exist, the sooner they can start browsing your products.  

Decrease cart abandonment

Having BNPL available on your online store makes sure that customers have the best checkout experience possible. You’d be surprised at the number of customers that get frustrated when they’ve taken the time to fill their cart with products only not to know how they can move through the checkout. 

“Payment choice is essential to attracting and converting shoppers; BNPL is arguably the payment type that is growing fastest in popularity. Just as shoppers demand options in other forms of payment, they will soon demand the presence of [buy now, pay later] options...” - Kevin Wild, Sezzle 

A buy now, pay later option makes it easier for customers to click that “Place Order” button. Not only that, but it saves you from having to cut into your bottom line with abandon cart recovery. Think about it—the fewer customers you have with abandoned carts, the more infrequent you’ll need to send discount offers to bring them back! 

Build trust with lower risk returns  

Your shoppers often aren’t 100% sure whether they want to buy something or not. That’s why free or no-hassle returns are so crucial to building long-term customer relationships. Loop Returns has some market research showing that nearly half of your customers are concerned about whether they will have to pay for a return. Not only that, but 74% of customers aren’t even sure they want to purchase from a brand that charges them for shipping.

Source: Loop Returns 

At the same time, having the option to only pay for a portion of you the products in their order upfront (if at all) gives your customers some peace of mind. If something doesn’t fit right or isn’t what they expected, they only have to get a refund for a small part of the order price instead of the whole thing. Pairing BNPL with robust returns processes gives your shoppers more trust in your brand. They will get the feeling that you’re looking out for them—the customer—and not just your profit margins.  

Some reasons to take a pause 

As a consumer, a buy now, pay later offer might seem the best possible outcome to the end of in-store credit cards. The truth is that while they so seem great, some possible hidden outcomes aren’t quite so optimistic. 

Credit is credit, no matter how small 

It’s easy to think of BNPL as something different from a credit card, but it’s just a virtual version of one. That means that to be able to offer you credit; someone has to check your credit rating. This comes in the form of a soft credit check, which shouldn’t have a major impact on your current credit ratings. But if you miss your payments, BNPL providers are reporting defaults just like any other form of credit. And defaults, no matter how they happen, can take some points off your FICO score. 

Buy now, pay later is still credit, and not having that physical card can even make it almost too easy to forget how many you’ve signed up for. With so many players in the game (Sezzle, Klarna, Afterpay, Affirm, etc.), you could have virtual credit with several different platforms. The hard part is that you then have to keep track of any you use and make sure you make your payments. 

When you consider all the possible downsides, it can end up being even more expensive in the long term, just like a regular credit card. The one thing you won’t get, though, are any of the perks or benefits you might get from a traditional credit card. 

More options for e-tailers at the expense of saving face 

Buy now, pay later isn’t all sunshine and roses for brands either. Giving customers the extra payment option have its benefits but can come at the expense of paying high fees for the conversions. 

Not only that, but if you’re making it too easy for your shoppers to take on extra credit, you might end up unintentionally hurting their credit scores in the long run. Well, you wouldn’t be hurting them, but you wouldn’t be helping them either. 

Luckily, the Federal Reserve’s latest data shows that consumer credit is surprisingly down, reaching its lowest point in the last five years. Shoppers are becoming more financially savvy and making wiser choices, even when they have the option not to. 

The imminent future of buy now, pay later

Hot on the heels of BNPL for online shopping is what Affirm is calling an “anti-credit” card—better known as a debit card. They’re taking the convenience and benefit that BNPL has provided online and making those perks available wherever customers shop.

Source: Affirm

By pre-loading, the forthcoming card, Affirm customers can split the cost between future payments. The best part is that shoppers won’t have to worry about the impact on their credit; whether they split the payments or cover the entire sale upfront, the card functions with all of the benefits of a credit card in the form of debit. 

A welcome evolution

While it is true that buy now, pay later hasn’t reached its heyday yet, I don’t think it’s going to be long before every single online store has some form of it. Since the dawn of ecommerce, brands have been creating more ways for their customers to pay, whether it be PayPal, Apple Pay, or Bitcoin. 

The next evolution of the credit card is a hybrid of usefulness with this change. It will give more power to the shopper to purchase how they want to. It will provide previously unseen power to brands as well. With buy now, pay later, ecommerce merchants can hedge themselves against expensive chargebacks, abandoned carts, and dissatisfied would-be shoppers. 

In the fast-paced world of payments, BNPL makes it a start now, win later experience for everybody, 

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