How “Buy Now, Pay Later” Plans Could Make You More Money

THERE’S AN E-COMMERCE payment option trend known as Buy Now, Pay Later (BNPL) that’s growing fast. It’s like traditional layaway, but you get your stuff now.

While the concept of interest-free financing is not new, platforms like Affirm do make implementation simpler, especially for small and medium-sized businesses. The question is, is it right for your store and could it help in growing online sales?

Terms revolve around a minimum spend and six to 12 months to pay off the balance, interest-free. If you don’t pay off the entire balance within the timeframe, you get hit with interest charges moving forward on the remaining balance, plus you’ll owe all the back interest you thought you were saving. Credit Karma published a recent study that showed 33 percent of U.S. consumers who used BNPL have fallen behind on one or more payments.

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From my perspective, it’s great for large purchases and may nudge me into buying upgrades. Why would I want to drop a bunch of cash if you’re going to give me 12 months to pay you without interest?

These types of offers are usually tied to credit cards supported by credit checks. But some providers promote “no credit checks,” which seems problematic.

How Does It Work?

For this discussion, we’ll stick with the Affirm platform. BNPL works as a POS payment option on your website checkout page. The consumer submits a few pieces of information and is given a real-time decision on approval. Once approved, the customer can select from approved payment timeframes. Affirm then handles the payment fulfillment and also sends out email and text reminders. The retailer is paid in full and is charged a small service fee, typically 2-3 percent (but be careful, because some can be as high as 6 percent).

What You Should Know

From a retailer perspective, BNPL provides a flexible payment option that some customers will like. It also provides opportunities to enhance your e-commerce strategy and will likely lead to higher per-transaction sales. In fact, 42 percent of Gen Z and 69 percent of millennial shoppers said they were more likely to buy if BNPL was an option, in a study by Afterpay.

BNPL isn’t currently regulated the same as credit cards, so you’ll want to take special note of how returns are handled.

Consider how BNPL might fit into your e-commerce strategy. If the boxes all get checked, BNPL could be a great way to boost your bottom line.