Buy Now Pay Later (BNPL) is a buzzword in the financing world nowadays. It’s one of the interest-free loan solutions that became popularized due to the economic uncertainty caused by the recent global COVID-19 pandemic.
Is Buy Now, Pay Later Helpful?
It’s similar to “layaway” or “lay-by” payment methods, except it offers consumers immediate possession of items. Specifically, it enables consumers to make purchases in short, interest-free installments, typically within three to six months, almost instantly.
Benefits of BNPL for Consumers
BNPL took consumer finance by storm for several reasons. On top of all is its flexibility, quick consumer possession, instantaneous approval, and inclusivity. These factors solve what in the marketing and business world is called a “pain point.”
Pain points are specific unrelenting problems that prospective customers face in a marketplace. These can be anything from difficulty or inefficiency in accessing a product or service to frustrations with their lack of features or a company’s bad customer support.
One of these pain points is the inability of customers to make large purchases due to their lack of finances. However, consumers can immediately overcome this with BNPL, usually at low or interest-free rates.
Here’s a roundup of what customers can enjoy with BNPL:
- Flexible payment method – BNPL allows customers to complete checkout even if their credit is less-than-perfect or they’re still waiting for this month’s paycheck.
- Low to zero interest and fees – Most BNPL schemes are interest-free or low-interest during the installment period.
- Looser lending restrictions – Besides low or interest-free rates, BNPL providers only run a soft credit check, which doesn’t ding a customer’s credit rating.
- Near-instant approval – BNPL financing happens at the point of sale. In other words, it’s accessed and approved at a retailer’s checkout at the time of the transaction, so consumers don’t have to wait days or weeks for the financing approval to come through the post.
- Increased purchasing power – BNPL enables consumers to make purchases at any cost that may otherwise have been unaffordable or unattainable to them.
- Credit building – Paying back BNPL on time may help build and improve credit scores. However, note that only a few BNPL providers report to credit bureaus, not all.
Benefits of BNPL for Merchants
Offering BNPL allows companies to compete and remain relevant in today’s ever-changing market. Not only does it accommodate digital natives and Gen Z shoppers, but it also future-proofs businesses, especially in times of international supply chain disruptions.
More specifically, here are the key advantages of accepting BNPL schemes for merchants:
- Increased Sales – Increasing consumer purchasing power through BNPL immediately increases the sales of a merchant.
- Increased customer loyalty – BNPL’s flexible and frictionless payment method provides consumers with a seamless and hassle-free shopping experience. In this case, they’ll likely come back to make another purchase and recommend the store to others.
- Higher average cart value – Allowing consumers to pay in installments will drive them to make a high-value purchase.
- Improved cash flow – Merchants are paid in full by BNPL providers at the time of purchase. The more BNPL purchases consumers make, the higher the income.
- Competitive advantage – BNPL is becoming the standard these days. Adapting to it gives merchants a distinct competitive edge over other vendors.
- Lower return rates – Installment payments can also reduce the chances of returning a BNPL product after the purchase.
Drawbacks of BNPL for Consumers and Merchants
The financial flexibility and inclusion of BNPL come with risks. It promotes a “buy now, worry later” mindset in many consumers. This lax scrutiny makes consumers indulge in irresponsible purchases, such as impulsive buying and overspending.
Another concern is the misconception that BNPL comes without interest or fees, even after the installment periods. In reality, BNPL providers charge interest and penalty fees for late payments.
BNPL being a loose credit can also be a concern. Since the requirements aren’t as strict as other financing, consumers can easily make multiple BNPL purchases with various providers. However, this can quickly result in a debt spiral and over-indebtedness.
Merchants also face issues regarding BNPL, typically about its integration. This payment method necessitates specialized equipment and technology, making it more expensive than other conventional payment methods.
Alternatives to BNPL
Many online loans are more or less the same as BNPL, as are the benefits. They offer the same seamless checkout experience and low or no-interest finance without stringent creditworthiness checks. One example of this is CreditNinja bad credit loans online.
Applying for a credit card with 0% APR, ideally with no annual fee, works as well. This option competes on special offers and rewards. Many credit card holders accrue these rewards, such as cash-backs, to fund their next shopping.
BNPL is very helpful for consumers and merchants. It offers consumers free financing and financial inclusivity and enables retailers and lenders to increase sales, enhance customer reach and retention, and drive growth.
Although these factors contributed to the rapid growth of BNPL in recent years, they still come with drawbacks for both parties. To avoid them, consumers must always make informed financial decisions, and merchants should encourage them to be financially responsible.