BNPL kicks in at the point of sale, giving consumers a financing option that has gone viral\u2014particularly with Millennials and Generation Z (i.e., those born between 1981 to 2009). Indeed, BNPL solutions are a recent development that cuts to the heart of easing customers’ affordability obstructions. The category introduced an impressive agenda aimed at disrupting the markets credit card companies (CCCs) like AMEX, Visa, and Mastercard, attacking the latter\u2019s unreasonably high fees and APRs. In addition, poorly implemented rewards programs have contributed to the worsening credit card image in consumers’ eyes.<\/p>\n An Insider Intelligence study<\/a> maintains the CCCs’ somewhat inflexible financing system allows their card users to build up massive liability at zero APR and then, within eighteen months, switch the unpaid balance into the mind-boggling realm of 19% to 29% annual charges. Unfortunately, their card users have little choice but to pay up, as cutting into debt at that point is like a mouse trying to get an elephant’s attention.<\/p>\n Moreover, the COVID-19 pandemic<\/a> messed with consumer habits, substantially turning our lives upside down. One of the things to fall through the cracks was paying bills on time, even making minimum credit card payments. As a result, FICO scores cratered, and access to stable credit went south for many, significantly impacting aggregate credit card usage in the United States.<\/p>\n So, when the BNPL entrepreneurs spotted these glaring gaps in the customer experience, they wasted no time trying to close them with a value proposition that could instantly sway brand loyalty. With a distinctive downtrend evident, it signified that there were possible “riches in the hills” available to BNPL providers able to address the described pain points conclusively. They\u2019re doing something right because the galloping BNPL growth (see below) signifies that retailer-sponsored financing\u2014which energizes BNPL\u2014is not an aberration or a side-financing issue. No, it’s mainstream, and likely to represent the go-to primary funding channel.<\/p>\n BNPL introduces disruptive initiatives designed to churn CCC loyalists by attacking unworkable touchpoints in the credit card usage experience. So, their platform mainly converges on allowing shoppers to buy with a set number of installments over time, bringing the debt back to zero. The drivers behind it all are close to zero APR, and include no hidden fees. Thus, the purchase cost remains unaltered. In perception terms, customers say goodbye to the CCC\u2019s bait-and-switch tactics and hello to transparency, manageability, and real affordability.<\/p>\n Talking more specifically, at checkout, online shoppers will interact with one of three options:<\/p>\n The participating merchants opting for the BNPL option pay the provider a commission of two to six percent of the transaction value. No part of this fobs off onto the payee other than what is noted above.<\/p>\n Finalizing the transaction usually involves scanning customers’ QR codes<\/a>, which they generate within their BNPL app. At that point, the provider credits the retailer (less the commission), and the customer becomes a borrower.<\/p>\n Retailers are the face offering BNPL as an option. Therefore, consumers tend to think it’s the store (online and brick-and-mortar) dictating the BNPL terms and uncharacteristically offering credit. It’s certainly not the case, because trading businesses want the money instantly, despite customers desiring a payment spread over time. Thus, fintech providers step into the breach to pay the seller and carry the debt. Indeed, if the customer defaults down the line, the bad debt is on the providers’ shoulders\u2014not the retailers’. So, in other words, providers make a double assessment with AI-smart algorithms to evaluate:<\/p>\n The combined assessment defines the transaction percentage the provider charges the retailer for taking over the debt without recourse. A poor record will be close to six, and a good one around two percent.<\/p>\n The global BNPL market<\/a> has developed quickly over eleven years, emerging at $15.91 billion in 2021. The forward look is more exciting, projected to grow up to to $90.51 billion by 2029\u2014a 21.7% compound annual growth rate (CAGR). In other words, the BNPL bandwagon is rolling on, gaining momentum as one retailer after another climbs aboard. But of course, they have little choice if they want to stay competitive. According to a Forbes study<\/a>, Gen Z BNPL followers have jet-propelled by 600% (and Millennials by 300%) since 2019.<\/p>\n While Gen X and Baby Boomer adoptions aren\u2019t too far behind, the growth of BNPL among the younger generations points to a future where BNPL no longer exists as an alternative payment method but as the primary one.<\/p>\n Everything outlined above probably sounds simple and streamlined enough. However, no new marketing strategy works unless marketers put themselves in the customers\u2019 shoes and map out the journey touchpoint by touchpoint. Therefore, consider the following:<\/p>\n Although the above is an online example, brick-and-mortar stores can participate in BNPL as well. The crucial consideration in both situations is to:<\/p>\n So, it involves issuing the customer\u2014either before or at the point of sale\u2014a payment card (physically or virtual). Here’s the thing: The elephant in the room, the one that can start charging around and upset the entire process, is, of course, that old weight around the neck: credit rating. Why? Because it all depends on the BNPL provider’s policy. According to Investopedia<\/a>, some do a hard credit check\u2014a whopping no-no for consumers who remember the bad old CCC days, which they may be simultaneously trying to escape. More of the “same old, same old” could easily trigger them to step off the buying journey and look for the goods elsewhere.<\/p>\n Thus, industry leaders apply zero checks (or soft checks). These include Affirm<\/a>, Afterpay<\/a>, Klarna<\/a>, Zip (previously Quadpay), and PayPal<\/a>. However, even with no protocol involved, it’s naive to believe there\u2019s no emotional pressure cooker at work.<\/p>\n For example, customers may worry about defaulting on their payments. When that happens, the answer is simple: BNPL providers enter the agreements assuming everyone will pay on time and almost always ask for the first installment as the purchase is approved. However, a loan is a loan, whichever way one cuts it. Thus, if payees stutter and upset the schedule, they could be in for one or all of the following: late fees, being handed over to a collection agency, or being reported to credit monitors, resulting in a black mark against one’s FICO score.<\/p>\n Another thing\u2014how long does the BNPL process take, even without a credit check? Cumbersome or technically defective BNPL applications may create aggravation and end in a prospect bouncing prematurely. Even so, as stated above, consumers are substantially interested in BNPL. So it appears the reservations aren’t quite as extensive, making BNPL a popular financing option!<\/p>\n BNPL provides consumers wary of credit cards and reluctant to use cash with a far more robust solution than either of those alternatives, all while ensuring convenient, flexible, and instantaneous approval.<\/p>\n Here are the three critical differentiators that make BNPL the choice of payment:<\/p>\n Step 1:<\/strong> Know your customer\u2014the products and services they want, the prices they’re ready to pay, and what motivates them the most.<\/p>\n Step 2:<\/strong> Calculate your average order value (AOV)<\/p>\n Step 3:<\/strong> Match your defined customers to the BNPL provider that can serve them best using AOV and other key factors (see below) as yardsticks.<\/p>\n Installment periods: <\/strong>BNPL entities’ multiple installment options can range anywhere from a fortnight (i.e., two weeks) to thirty-six months. Thus, your AOV is a critical consideration when choosing from providers that focus on specified lending periods. In other words, steer clear of long-term BNPL providers if your AOV is in weeks and vice versa if it’s in months or years.<\/p>\n Credit limits:<\/strong> Another primary consideration is the credit limits that suit you best. BNPL providers transparently state their maximums and minimums, so combine this metric with your AOV to settle on a short list of suitable lenders.<\/p>\n Industry and region focus:<\/strong> In addition, active BNPL funders are not always national and suitable for every industry. Instead, the evaluation will reveal their specialty markets, states, and countries.<\/p>\n Finally, a competitive analysis will help clarify your choices even further. Indeed, your business may require a network of BNPL facilitators with different orientations and expertise for various situations. Here are some of the mainstream players to consider:<\/p>\n Klarna<\/strong> is a Swedish fintech enterprise operating in nearly 20 countries:<\/p>\n Sezzle<\/strong> is a US fintech corporation headquartered in Minneapolis, funding over 47,000 BNPL brands.<\/p>\n PayPal <\/strong>offers Pay in 4<\/a>, which, more or less, speaks for itself.<\/p>\n <\/p>\n![\"\"](\"https:\/\/www.sogolytics.com\/blog\/wp-content\/uploads\/2022\/11\/rupixen-com-Q59HmzK38eQ-unsplash-scaled.jpg\")
<\/a><\/p>\nHow does BNPL work?<\/h2>\n
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How significant is the BNPL market?<\/h2>\n
The Buy Now Pay Later customer checkout experience<\/h2>\n
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Some critically meaningful benefits that distance BNPL options from CCCs<\/h2>\n
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\nAccording to a UPS study<\/a>, more than 50% of customers say they won’t buy from virtual entities unable to demonstrate a reliable and functional returns policy<\/a>. In other words, trying things out, perhaps buying two or three options (think outfits), and returning the unwanted items is hard-baked into customers’ motivations.
\nSo, the BNPL experts have driven home the advantage by creating features like free returns<\/em> and a dedicated support staff to help deal with these transactions.<\/li>\n
\nIndeed, fractionalizing items selling for $1,000 or more with zero APR additions creates word of mouth, leading to new Millennial and Gen Z customers, with escalating conversions of larger-than-average basket sizes.<\/li>\n<\/ol>\nSelecting the right BNPL provider for your business<\/h2>\n
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