Business

Is “Buy Now Pay Later” a viable Business Model?

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BNPL is a type of transient financing that permits consumers to make purchases and pay for them at a future date, often interest-free. Likewise referred to as retail location installment credits, Buy now Pay later arrangements are becoming an increasingly famous payment choice, especially online shopping. Utilizing BNPL financing can be convenient for consumers, but some potential downsides to consider. BNPL, otherwise called Buy Now Pay Later, is a payment choice where you can purchase without paying from your pocket. 

Generally, you join an organization giving this office who makes the payment when you make the purchase. However, once the lender pays on your behalf, you should repay the sum within a stipulated time. You can either pay it as a lump sum or pay it using no expense Equated Monthly Installments (EMIs). If you neglect to pay the sum inside the given repayment tenure, then the lender will charge you interest on your sum. Further delay could affect your credit score severely.

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Benefits of Buy Now Pay Later Business Model

Benefits to Customers

Customers choose to buy items and pay for them with flexible terms going from 90 days to multiple years, depending on the provider, further developing the customer experience and making it frictionless. Imagine, you are getting everything you wanted even if you do not have th full money, this is really exciting. The monthly payments are interest-free, and sign-up is a lot faster than credit cards. Nearly 45 percent of BPNL users cite clarity of terms as a key need when making purchases online, and 40 percent of the capacity to screen spending.

Benefits to Retailers

Retailers are using the BPNL model for high-value merchandise or those offering low-value products; however, it needs to increase conversions truck size, reach new customers and keep existing ones. Payment provider Stripe – a QuadPay partner – says it’s anything but a solid match for businesses selling services or software or those sensitive to cost since fees are higher.

Increased sales value Providers – For example, Klarna, guarantee that the expansion of a BPNL feature led to an increase of 35% in sales value at its client GymShark. QuadPay says merchants implementing its BNPL item for e-commerce have seen more than 18 percent increase in conversions and more than 55 percent increased average checkout value. It is a method for ensuring revenue without resorting to strategies, for example, limiting.

New customers – A BPNL choice could draw in customers who were previously hesitant to buy items because the price was out of their budget. Lifestyle brand Blackpool says its sales rocketed six times after launching its BNPL plans. Its CEO guarantees that it got different demographics, including price-cognizant consumers who might think our premium items are priced beyond their reach. With their local area, the providers will expose a store’s items and brand to a huge number of potential customers.

Devotion Customers who know this choice is available on an eCommerce store and like the seamless nature of the customer experience are more likely to return for repeat purchases.

Retailers will, however, need to contemplate how they will be imparting the customer relationship to the BPNL provider.

Integrations- The greatest challenge to BNPL reception used to be how to direct integration into the retailer’s retail location system is an arduous process. BPNL services are, however, increasing their integrations with existing eCommerce systems, for example, BigCommerce, Shopify Plus, and Salesforce Commerce Cloud, to make it as easy as a flick of a switch.

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The Future of Buy Now Pay Later Business Model

As the use of frictionless, contactless experiences and mobile wallets at the checkout in retail settings increases, the uptake of BNPL should go with the same pattern. BNPL payment methods went from 5% of all eCommerce payments in 2020 to 10% in 2022, as per the Global Payments Report 2022. Customers are steadily being offered BNPL services outside eCommerce to pay for purchases, and they will become as omnipresent as credit card payments.

The Drawbacks of BNPL Business Model

While the delicate credit checks the BNPL providers run at purchase don’t affect customers’ credit scores, late payments can. Customers who default might be banned from further purchases. The terms and conditions from the BPNL service providers are not necessarily clear at joining either, leading to unexpected fees. Buy now pay later might be convenient for some, but they also present some disadvantages when irresponsibly used.

I. Providers decide the due date.

When you purchase through a buy now, pay later scheme, the provider gets to decide when they will auto deduct the payments from your record. You can’t negotiate on the date either. If you need more money in your elected exchange account because it’s as yet a few days from your payday, expect to pay a late payment fee for each day of delay.

II. High late payment fees

The money you acquire may not bring about interest; however, you might be charged a high late payment fee if you don’t pay on time. Granted, late payment fees for buy now, pay later schemes are somewhat lower than credit card late payment fees, yet they can, in any case, be a considerable sum – $10 compared with $20 for a credit card.

III. Negatively affect future credit applications if you are not able to pay on time

As a result of the regal commission, more lenders have tightened lending requirements and now investigate how candidates used to buy now, pay later, and comparative lending services. Of course, if you get disapproved for an advance – for reasons unknown – your credit score gets negatively affected, so while buying now, pay later may not directly affect your credit score; it has an influence. Instead of making purchases utilizing debt items like the buy now, pay later system, consider developing your monetary literacy and spending brilliant instead.

IV. No credit checks

An endorsement might be quick and convenient because buy now, pay later providers don’t do credit checks or affect credit scores. This might lead some people to abuse the system, be unable to keep track of their debts, or believe that their credit history remains pristine.

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Wrapping up

Buy now pay later is certainly becoming a force to be reckoned with in the worldwide payments space. Not exclusively is it quickly changing how we shop; it’s verification that consumers are moving toward purchases with a completely different mindset. As changing consumer behavior in response to the pandemic becomes more entrenched, more consumers will demand transparency, convenience, and interest-free payment options. This is the greatest reason Buy now pay later is the favorite option for most people. So, ultimately you can say that it is the best business model at this point in time. 

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