Buy Now Pay Later (BNPL) providers, such as Afterpay and Klarna, allow customers to pay for an item or service over time, rather than paying the full amount upfront.
Breaking purchases into smaller, more affordable chunks can be highly appealing, especially when coupled with persistent cost-of-living pressures, so it’s unsurprising that BNPL has become so popular in recent years. According to research by Finder, in Australia, around 40% of people have used a BNPL service in the past six months, while in the UK, over half of UK adults have used a BNPL service at some point.
The benefits of adding BNPL to your business
There are many reasons why a business might consider adding a Buy Now Pay Later payment option for their customers:
Businesses are paid upfront: BNPL platforms handle all parts of payment collection from the customer, meaning businesses get paid in full at the time of sale. This is great for cashflow, while leaving any risk of customer non-payment with the BNPL provider.
Increased conversions: Some customers may really want a product or service, but lack the means to pay for it all upfront. By offering a BNPL option, more customers may be tempted to buy that item, increasing your sales.
Potentially higher order values: As a BNPL option removes the obstacle of an item being too expensive to buy upfront, it is quite possible that a customer may purchase additional items on top of the one they really wanted to buy, as they can spread its cost over the BNPL payment term.
Greater payment options: Customers always appreciate having different ways to pay. A BNPL option is one way to offer increased convenience and flexibility.
Are there any drawbacks to BNPL?
While BNPL can be an attractive payment option for both customers and businesses, there are a few downsides to keep in mind:
Higher fees: The fees that BNPL providers charge to businesses to use their service are on the higher side, typically ranging anywhere from 2% to 8% of the product price. While some businesses might have no issue absorbing this cost, businesses that operate with very tight margins might find such fees too burdensome financially.
Eligibility varies: While eligibility criteria differ between providers, BNPL platforms typically screen businesses wanting to use their services for things like location, industry, and overall financial risk, meaning applications from some businesses may be turned down.
Watch out for refunds: As BNPL may encourage impulse purchases from certain customers, it is also possible that you might have to process a higher number of refunds from such customers, which can be both costly and time consuming.
When is BNPL worth it?
Whether you choose to offer a BNPL option to your customers is often highly dependent on your product range and industry. Retail businesses, for example, have seen a lot of success with BNPL, as have businesses offering mid- to high-tier priced products.
If you’re considering introducing a BNPL service into your business, speak to a member of our team today.
We’d be happy to review such providers’ merchant fees and how they may impact your bottom line.
