The rise of e-commerce has revolutionised the way people shop. With just a few clicks, customers can purchase their desired items and have them delivered right to their doorstep.
However, as convenient as online shopping may be, consumers are constantly looking for more convenient and flexible payment options. This has led to the rise of "Buy Now, Pay Later" (BNPL) services that allow shoppers to make purchases and spread the payments out over time.
For ecommerce stores, integrating BNPL options can be a game-changer, irrespective of whether they sell digital products online or physical products. It can significantly boost sales and customer loyalty. But how do you implement BNPL effectively and what are the pros and cons of different providers?
In this detailed guide, we'll take a deep dive into everything you need to know about BNPL for ecommerce, so you can make an informed decision and stay ahead of the curve in the competitive online marketplace.
What is Buy Now Pay Later (BNPL)?
Buy Now, Pay Later (BNPL) is a flexible payment option that allows shoppers to purchase items and split the cost into manageable instalments over time. In other words, it's like having a mini loan that allows you to enjoy the benefits of a product without the upfront financial burden.
This payment option has become increasingly popular in the ecommerce world, providing a convenient and affordable way for customers to shop, while also driving sales for online retailers. With BNPL, shoppers can make purchases with more ease and freedom, and ecommerce businesses can attract and retain more customers with this innovative payment option.
Types of Buy Now, Pay Later Payment Plans
Instalment payments allow customers to pay for their purchases over a set period. This payment option is usually divided into equal payments, making it easier for customers to budget their expenses. Typically, customers will pay a small deposit at the time of purchase, followed by a set number of monthly payments.
Deferred payments are a type of buy now, pay later option that allows customers to delay payment until a later date. With deferred payments, customers can place an order and have the item delivered immediately without having to pay anything upfront. This payment option is particularly attractive to customers who need to wait until they have the funds to make the payment.
Split payments allow customers to split the cost of their purchase into multiple payments. This payment option is typically available for larger purchases and can be divided into several equal payments. Customers can select the number of payments they want to make, and the store will charge their credit card accordingly.
Why do customers prefer BNPL?
Convenience and Flexibility
With BNPL, customers can make purchases and pay for them over a period of time, making it easier to manage their finances. This is particularly helpful for those who may not have the means to pay for a product in full upfront or need to manage their finances carefully. BNPL services also provide the flexibility to adjust payment schedules and amounts, making it more convenient for customers to meet their financial obligations.
No Interest or Fees
Some BNPL providers offer interest-free options or charge minimal fees for their service. Customers can pay for their purchases over time without incurring additional costs, which can make this option more attractive than using a credit card. With no interest or fees, customers can make purchases without worrying about accruing debt or getting hit with unexpected charges.
Transparency and Clarity
BNPL providers also offer transparency and clarity in terms of the payment process. Customers can see the total amount they will pay and the installments required before making a purchase, which allows them to make an informed decision. This transparency and clarity help customers budget and plan their finances accordingly.
Easier Access to Products
BNPL also provides easier access to products for customers who may not have had the means to purchase them otherwise. By spreading out the cost of a product over time, customers can make purchases without the upfront financial burden. This helps customers access the products they need or want while providing a more manageable payment structure.
A Good Credit Alternative
For some customers, BNPL services offer an alternative to traditional credit options. Customers may not want to apply for a credit card or take out a loan, and BNPL services can offer a more attractive option. Since these services often have less stringent credit requirements, they provide a more accessible option for customers who may not qualify for traditional credit products.
Advantages of BNPL for Ecommerce Stores
Increases Conversion Rates
Buy now, pay later options allow customers to purchase items they want without having to pay the full amount upfront. This is particularly attractive to customers who may not have the funds to make a large purchase or those who are hesitant to spend a significant amount of money in one transaction. As a result, offering this payment option can lead to an increase in conversion rates and revenue for e-commerce stores.
Moreover, according to Digital Commerce 360, retailers who have implemented BNPL options have seen an increase in their average order value (AOV), indicating that customers are more likely to buy more expensive items when they have the option to pay in instalments.
Boosts Customer Loyalty
BNPL for ecommerce stores can also help build customer loyalty. When customers have the option to pay for purchases over time, they're more likely to return to your store and make additional purchases. Furthermore, some BNPL services offer perks such as interest-free periods or rewards programs that incentivise customers to use their service again in the future. By providing a convenient and flexible payment option, you can create a positive shopping experience for your customers that encourages them to come back.
Expands Your Customer Base
BNPL payment options can also help expand your customer base by attracting new customers who might not have shopped with you otherwise. For instance, young consumers or those who have less disposable income may be more inclined to make a purchase if they have the option to spread out the cost over time. By providing a payment option that suits the needs of different types of customers, you can reach a wider audience and increase your chances of making more sales.
Reduces Cart Abandonment
Cart abandonment is a common issue for ecommerce stores. According to Drip, the average cart abandonment rate for e-commerce websites is around 70%. One of the primary reasons for cart abandonment is the lack of flexible payment options.
BNPL services can help reduce cart abandonment by providing an additional payment option that may make the purchase more feasible for customers. This can help lower your abandonment rate and increase your overall sales.
Improves Cash Flow
BNPL services can also improve cash flow for ecommerce stores. When customers use this payment option, they're essentially taking out a mini loan that they pay back in installments. As a result, you receive the full payment upfront and don't have to wait for the entire amount to be paid in full before receiving the revenue. This can be especially helpful for small businesses that may have limited cash flow and need a more steady stream of income.
How to Integrate Buy Now, Pay Later Options into Your E-commerce Store?
Choose a Buy Now, Pay Later Provider
The first step in integrating buy now, pay later options into your e-commerce store is to choose a provider. There are several providers in the market, including Afterpay, Klarna, and Affirm. Each provider offers different payment plans, fees, and features. It is important to research and compare different providers to choose the best fit for your store.
Integrate the Payment Option into Your Store
Once you have chosen a provider, the next step is to integrate the payment option into your store. You can use online site builder tools like Shoprocket to add the payment option to your e-commerce store. All you need to do is add the snippet code into your website HTML and everything else will be handled by Shoprocket.
Set Up Payment Plan Options
After integrating the payment option, the next step is to set up payment plan options. This involves determining the payment plans that you want to offer, such as installment payments, deferred payments, or split payments. You will also need to decide on the payment period, fees, and interest rates associated with each payment plan.
Promote the Payment Option
To ensure that your customers are aware of the buy now, pay later payment option, you need to promote it. This involves highlighting the payment option on your website, including it in your product descriptions, and promoting it on your social media channels. You can also offer special discounts or promotions for customers who choose to use the payment option.
Monitor and Optimize
Once you have implemented the buy now, pay later payment option, you need to monitor its performance and optimize it. This involves tracking the usage of the payment option, analyzing customer feedback, and making adjustments as necessary. You can also use analytics tools to measure the impact of the payment option on your conversion rates and revenue.
How do I choose the right BNPL provider?
Choosing the right BNPL provider can be overwhelming, with numerous providers offering different terms and options. Here are the tips to choose the best BNPL provider:
One of the most critical factors to consider is the interest rate charged by the provider. The lower the interest rate, the better the deal.
Additionally, you should consider the payment schedule offered, as well as any fees associated with the BNPL plan. Some providers charge fees for late payments, missed payments, or early repayment.
Reading customer reviews is also crucial as they offer insights into the provider's reliability, customer service, and overall user experience.
Last but not least, ensure that the provider has a secure payment platform to protect your financial information.
Which are the best Buy Now Pay Later apps in the USA?
There are various BNPL apps in the USA, each with its unique features and benefits. Some of the best apps include Afterpay, Klarna, Quadpay, Affirm, and PayPal Credit.
Afterpay and Klarna are well-known for their interest-free installment plans, while Affirm offers transparent interest rates and flexible repayment options.
Quadpay is another popular BNPL app that allows users to split their purchases into four interest-free payments.
PayPal Credit is a BNPL solution offered by PayPal, allowing users to make purchases with flexible repayment options.
What are the risks of BNPL for online stores?
BNPL is an excellent solution for consumers looking to make purchases and pay later. However, for online stores, there are inherent risks associated with BNPL. The primary risk is the potential for late or missed payments, which can result in revenue loss and additional fees.
Additionally, online stores may face chargebacks from customers who dispute their BNPL payments. It is, therefore, essential for online stores to assess the risks and determine whether BNPL is a viable option for their business.
Do you have to pay interest on Buy Now Pay Later?
The interest charged on BNPL plans depends on the provider and the specific terms of the plan. Some BNPL providers offer interest-free installment plans, while others charge interest rates. It is essential to read the terms and conditions of the BNPL plan carefully to understand the interest rates and any associated fees.
How does Buy Now Pay Later differ from a credit card?
BNPL and credit cards are both methods of financing purchases. However, the main difference between the two is how the repayment process works. Credit cards allow users to borrow money up to a specific credit limit and pay it back in installments, with interest charges applied.
BNPL plans, on the other hand, allow users to split their purchases into several interest-free or low-interest payments, with no credit limit. Additionally, BNPL plans are typically easier to qualify for than credit cards, making them an excellent option for consumers with less than perfect credit.
Does BNPL affect cibil score?
BNPL can have an impact on your credit score, but it depends on the provider's reporting practices. If the provider reports to credit bureaus, missed or late payments can have a negative impact on your credit score. However, some BNPL providers do not report to credit bureaus, so there may be no effect on your credit score.
What happens if you don't pay back BNPL?
If you don't pay back your BNPL payments, you may face additional fees and charges, such as late payment fees or interest charges. If you continue to miss payments, the provider may refer your account to a debt collection agency, which can have a negative impact on your credit score. It is essential to read the terms and conditions of the BNPL plan carefully and ensure that you can make the payments before signing up.
Who is eligible for BNPL?
BNPL (Buy Now Pay Later) eligibility criteria can vary depending on the specific service provider. Generally, individuals who are of legal age (18 or 21 years old depending on the country), have a valid identification, a debit or credit card, and a steady income may be eligible for BNPL. However, some providers may also consider credit score, credit history, and other financial factors when determining eligibility. It's important to check with the specific BNPL provider for their specific eligibility requirements.
The Bottom Line
Buy Now, Pay Later (BNPL) is a flexible payment option that allows customers to purchase items and split the cost into manageable installments over time. BNPL has become increasingly popular in the e-commerce world, providing a convenient and affordable way for customers to shop while also driving sales for online retailers.
By providing a convenient and flexible payment option, e-commerce businesses can create a positive shopping experience for their customers that encourages them to come back.
So, what are you waiting for? Get in touch with Shoprocket to understand how we can help you grow your online business.