As your online store get bigger and bigger, you’ll definitely want to explore new and different strategies to attract more consumers and subsequently increase the top line. Adding additional payment methods – in particular alternative payment methods (APM’s) at your website is one way to do it. The introduction of buy now, pay later (BNPL) payment methods to the market has shown its value in the last couple of years, and if you own a business where your average order value (AOV) is around the $100 mark or more, then this is absolutely something that you should be considering.
What is buy now, pay later?
Buy now, pay later allows your customers to make purchases right away while paying over time through instalments, allowing you as a business to get paid upfront and in full without taking the risk of potential defaults. It’s a fantastic approach to make high-ticket consumer products and services more affordable while also increasing your overall cart value and pleasing existing and new consumers with greater financial flexibility. The immense benefit that the payment method is providing makes have made more and more business adopt it in the past years.
But how does BNPL exactly work, and how can it benefit your business? In this article, I’ll go through everything you need to know about the payment type, and what you should be aware of prior to adopting it to your business.
How does buy now, pay later work and which providers can you choose?
The name says it all. Buy now, pay later services are a credit payment structure that gives consumers greater financial control and purchasing power by being allowed to pay over time through instalments. You as a business are essentially allowing consumers to purchase your products or services today and make payments in stages, which gives them more freedom to shop your site as less capital has to be provided up front. BNPL payments are usually divided into four to six interest-free instalments, but the payback time really differs from provider to provider, from industry to industry, and the like.
To start accepting BNPL on your E-Commerce site, you must pick between a number of different BNPL providers, such as Affirm, SplitIt, Afterpay, Klarna and ViaBill. Depending on where you are located, you may select from a variety of alternatives, and in case you are targeting customers in multiple countries, you might even want to add several different BNPL providers to your website. Shoppers can then pick the provider that works best for them, finish the transaction, and start making payments over time. Your business will always get the full payment upfront, minus the fees that the payment providers requires.
The 6 reasons for why you should add BNPL to your online store
1. Large opportunity to drive more revenue
Adding BNPL to your store will most likely allow you to tap into a new audience base, that might not have been as likely to purchase from you in the past in case your products or services are in the more expensive side of the cost spectrum. This is especially seen in the furniture and home decor industry, consumer electronics, high-end fashion, and the like. When consumers are allowed to split their payments, they’re more likely to make larger purchases. A $2,000 item is far more appealing when it can be divided and paid in ten $200 instalments.
2. Increased average order value (AOV) and conversion rate (CR)
Numerous studies have assessed and concluded that BNPL increases the average order value, and in particular the conversion rate, on higher value items. Buy now, pay later is a clever technique to split the total sum of your clients’ purchases. When consumers fill up their carts, the total may mount up to be quite significant. Knowing they have the option of dividing their bill interest free encourages them to keep shopping, increase the basket size, and completing the purchase.
3. Minimum risk for you
From the standpoint of the business adopting the payment method, one of the most worrisome aspects regarding completing online purchases before receiving payment is what would happen if the consumer did not pay – i.e., defaulted. Because you’ll always receive the full payment up front with BNPL, this danger is minimized. BNPL pays you straight and takes care of non-paying clients. Most BNPL providers even cover the risk of fraud and chargebacks, so the risk is really minimal. Of course, since the BNPL provider takes up the full risk, this will also be reflected in the fee that they will charge in order for you to be able to apply their service.
4. More flexibility at checkout
Consumers are generally becoming more demanding when it comes to having more payment options available on a website. Combining BNPL with other payment alternatives gives shoppers greater financial freedom and may also increase the possibility for repeat purchases and hence als the life time value (LTV) of your customers. They’ll appreciate the option to select, and you’ll gain customer acquisitions and loyalty in return over time.
5. Popular payment method
BNPL’s popularity is on the rise, with more and more online businesses adding it as a convenient payment option. As your competitors implement this popular payment method and include BNPL on their websites, you don’t want to be left in the dust. This may result in missed sales opportunities and reduced consumers loyalty. For more information about payment methods in general, you can read this article about ‘The 6 Most Common Online Payment Options’ and for information about local payment methods across multiple countries, I’ve also created the following article: ‘Local E-Commerce Payment Methods To Consider When Internationalizing’.
Additional marketing value is also something that should be considered. Some providers will add your products to their online network once you connect their BNPL to your store, allowing visitors of their website to get introduced to your brand. Klarna as an example have their own shopping universe, where your products could be featured as well.
6. Increased trust
As mentioned in one of my other articles about trust badges, payment methods added to a website do also create value as a trust badge. When consumers see trustworthy, reputable payment method being available on a website, this will also increase the general consumer trust towards a brand. Considering how much the demand for BNPL solutions have increased in the past years, and how large some of the providers have become (e.g., Klarna, Afterpay, and the like) these providers will only increase the trust towards your site further.