“Buy Now, Pay Later” – you’ve probably NEVER heard of this option while shopping online.
Well, until most recently. Buy Now, Pay Later, or BNPL is a short-term financing plan that places flexibility in the hands of the customer — empowering them to make purchases instantly while paying for them at a future date. Which is, truly, a match made in heaven.
With more than half of Americans found to be living paycheck to paycheck, firms that offer non-traditional payment offerings, like BNPL, have shown immense growth potential. In fact, the market is predicted to hit a whopping valuation of $3268.26 billion by 2030. Hope you’re buckled in, my venture capital friends 🚀
How does it work?
Let’s say you’re shopping for a Walnut Charcuterie Board Set worth a total of $100 online. Yes, they exist. Promise. And as you get to the online checkout, you’re presented with the pleasant opportunity to pay for the product in 4 interest-free payments of $25 each with a registered payment provider. Your eyes light up in excitement. Cha-ching! 💰 However, these payment options are ONLY offered after a soft credit check on the customer since they operate as separate entities from the ACTUAL retailers. Wait, what? 😯
Payment providers like Klarna, Clearpay, PayPal, Afterpay, and Paybright, among others that offer BNPL services, make money from the retailer and not the customer. Typically, they take a cut from any transactions they help the retailer make online. These “cuts” could range anywhere between 2% to 8%, similar to agreements made between traditional credit card companies and merchants.
Why does it work?
If you don’t enjoy the idea of dropping $200 at once for a pair of Ray-bans, this one is for you. If you do enjoy it, however, this is definitely for you as you might learn a thing or two 🙌
Here are a few reasons why the BNPL business model works:
For customers:
- Flexibility: You can spread the cost of the product into smaller amounts over a short period of time, usually weeks or months.
- Level playing field: You don’t need a credit card to avail of “credit” services for smaller purchases anymore. All, while without having to worry about an extensive credit check.
For DTC brands:
- Increased conversions: Data shows that online brands that offer BNPL services have increased shopping cart conversions by almost 20-30% more.
- Boost in sales and average order values (AOV): Offering BNPL services influence customer behavior to boost overall sales and increases average ticket size by between 30% and 50%.
Whether you’re a customer or a retailer, BNPL is the way to go. If you don’t — you’re probably going to be left behind. And we don’t want that for you. We’re hoping to equip you with the extra knowledge you need to set you up for success 👀 If you enjoyed this read, be sure to check out Nitish Menon’s blog here. There’s some fun stuff for all marketing buffs out there. And if you’re hoping to learn how to evaluate your online marketing performance, using important metrics like CAC, LTV, etc., click here (includes sample case studies and dashboards for measurement).
