BNPL – how deferred payments can support e-commerce?

BNPL - part 1

E-commerce practices are ever-changing, and so are the expectations of online shoppers. Flexibility is vital in building long-lasting relationships with customers. The pandemic and challenging economic environment changed buying habits and resulted in a significant increase in online purchases. At the same time, the Buy Now, Pay Later (BNPL) model gained notable popularity. Albeit not a new solution, it is now gaining momentum, particularly in Europe. Let’s look at how this payment method works.

What is BNPL?

BNPL is a particular type of installment loan that allows the customer to make a purchase at the point of sale but pay for it later. If someone is struggling to provide a total amount upfront, they can divide it into smaller installments paid via bank transfer or billed to a debit or credit card over several weeks or months. 

This specific solution can be implemented if the merchant partners with the BNPL lender. The financial service provider is responsible for soft checking the customer’s credit score, collecting installment payments, and paying the seller the total amount at the moment of the transaction. The process is such that while the customer doesn’t have to provide the entire amount at once, the store receives the full payment immediately. In turn, the BNPL financing company receives a set payment per transaction agreed upon with the vendor.

Who uses BNPL?

We live in turbulent times. But these are also times of high-tech culture. More and more people, especially younger generations, turn to the Internet when shopping. Yet, many people need better credit scores to enter a bank-moderated loan scheme. Millennials (56%) and Generation Z (49%) use this solution most often, with Gen X following closely (36% of people born between 1965 and 1979 choose this payment method). The BNPL formula is growing so rapidly that it’s expected to reach 900 million users worldwide in 2030

BNPL’s unprecedented popularity level in the Polish market

In Europe, Poles are most likely to choose deferred payments for purchases. While half of Europeans buying online have already used BNPL at least once, for Poland, this percentage was as high as 62 percent last year, followed by the Swedes (58 percent) and residents of other Scandinavian countries. According to July data from the Financial Market Development Foundation and CRIF, the BNPL sector in Poland achieved high year-on-year growth (+85% in the value of financing provided and +104% in the number of loans granted). In July of this year, in terms of the number of loans granted (nearly 330,000), the sector overtook the traditional lending segment (309,000).

Benefits for the consumer

The checkout experience with BNPL is very straightforward. After adding the required items, the client proceeds to checkout and chooses the “buy now, pay later” option from the list of payment methods (other options include, for example, PayPal or a credit card). These solutions are offered by companies like Klarna, Afterpay, or Sezzle, and last but not least, most notable player could be Apple. The soft credit check usually takes no more than a few seconds, thanks to the advanced fintech solutions. No pre-arranged credit score proof is needed; the purchasing process is smooth and much more flexible. The main benefits for customers are as follows:

  • There are no fees or interest charges (as long as the installments are paid on time)
  • The purchasing process is frictionless and gives shoppers more spending power
  • There is no need to use credit cards
  • Fast approval at the point-of-sale is guaranteed

Benefits for the retailer

Merchants selling electronics, clothing and accessories, utility bills, and beauty and tech products are among those who most often opt for the deferred payment method. And for a good reason. The pros of this solution are aplenty. 

  • Increased sales: payment flexibility opens a world of new options for customers who wouldn’t have enough money to make payments at the moment of purchase. Nearly 70 percent of consumers admit that when using BNPL, they spend more than if they had to pay for everything upfront.
  • Reduced cart abandonment: the BNPL option lowers the rate of “window” shopping and minimizes hesitation among buyers
  • Enhanced Customer Lifetime Value: by meeting shoppers halfway, merchants gain their loyalty and build trust 
  • Gained competitive advantage: Although the number of stores working with BNPL lenders is growing, many still need to catch up. Don’t be one of them. 
  • Improved customer experience: The flexible approach to payment is definitely valued by shoppers and gives the provider of such an option additional value. 

Today’s customers are increasingly raising their expectations of e-commerce companies. This means that it’s more difficult to arouse their curiosity and convince them to buy. It also gets harder to stand out from the rest of the competition on the market. Contact Innovatika’s experts to learn more about the deferred payment method. 

In our next article we will talk about available BNPL providers and business models they use. Read the article here.

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Katarzyna Królak-Wyszyńska
Katarzyna is an expert in discovering potential areas for development and turning them into effective businesses, products and services, primarily digital. She concentrates on user-oriented design and quick concept validation. She co-created and organized the Future Makers Challenge, a program connecting corporations with students. Co-creator of The Heart Warsaw. Co-author of the MIT EF accelerator program in Poland. She sits on the Jury of MIT Innovators Under 35 in Europe and South America. A Startups mentor.

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