“Buy now, pay later” is revolutionizing the retail industry. Customers have a new way to pay that makes high to mid-ticket good more accessible beyond payday. Instead of paying an average annual interest rate of over 17 percent on credit card purchases or waiting until they have money in the bank to make a purchase (which could potentially be sold out by the time that happens), customers can now choose “buy now, pay later” at checkout to take their goods home right away.
This payment structure can inspire customers across the board to make more high-ticket purchases. It can also help customers save time since they can purchase more goods in one trip instead of waiting until they’re paid again to follow through with all of their intended purchases.
As PYMNTS.com puts it, this type of flexibility can “turn intend into spend.” And since next-gen consumers are more debt-averse than their predecessors, the ability to pay off goods in interest-free increments can’t be overlooked as an alternative to buying with credit cards.
The Payment Structure
“Buy now, pay later” service providers let customers pay for goods as they earn the money, taking funds from each customer’s account on pre-specified dates until the goods are paid for in full. Payment windows are normally every two weeks or every month.
With that said, different “buy now, pay later” service providers offer varying payment terms. Klarna, for instance, even offers financing options that let customers to pay off goods from 6 to 36 months after their purchase. And many service providers offer interest-free payment options unless the customer misses a payment or has to extend their payment window beyond a specified period of time.
The Benefit for Customers
Suddenly, customers can get that Louis Vitton bag, Casper Mattress, or La Mer skin crème they’ve been eyeing without depleting their bank balance. Not only do “buy now, pay later” platforms pose less of a debt risk than traditional credit cards, they also typically require less in terms of credit score perfection from potential lendees.
Some providers don’t even check customer’s credit scores before they approve them for an installment payment plan. This means the shopper doesn’t have to add another credit inquiry to their record just to get the goods they want––thus eliminating the dreaded credit check––a huge friction point in high-ticket impulse shopping.
The Benefit for Retailers
While it’s obvious why customers would want to use “buy now, pay later,” the benefits of implementing this payment option are even more substantial for the retailers running the show.
Most noticeably, retailers can significantly boost their ROI from implementing a “buy now, pay later” solution. In fact, those that offer installment payments through Klarna have an average 58% increase in average order value (AOV), as well as a 30% lift in checkout conversion rates. So not only do customers buy way more when they can choose installment payments, they also finally shell out for those high-ticket or aspirational purchases that they’ve been holding off on.
But that’s not all…by applying what we know about where the retail industry is headed, we can find even more benefits of implementing “buy now, pay later” at checkout. Let’s delve in a little deeper.
The Next Phase of Retail Evolution
Retail as an industry is in the process of recovering from the race-to-the-bottom. As more customers return to a cost-per-wear model of determining product value and gravitate towards sustainable purchases, retailers will struggle to source products that fulfill customer need for quality and value simultaneously. This is where “buy now, pay later” solutions can ease their transition. “Buy now, pay later” solutions are the perfect strategy for retailers who want to sell high-quality inventory, but have been struggling to get their customers to shell out for full-price products.
“Buy now, pay later” breaks down the price of a quality product into more manageable monthly increments. So, customers who only have enough cash on hand to purchase a cheaper item can use “buy now, pay later” financing to take home the more sustainable (and more valuable) choice. This may help inspire customers who intended to buy fast-fashion or low-ticket items to buy higher-ticket, more environmentally friendly products that they can use for the long haul.
Consider This When Choosing a Platform
There are a few heavy hitters in the “buy now, pay later” arena that have been around for a while, as well as a couple of newer, lesser-known “pay later” platforms. So, what sets certain service providers apart from the rest? Here are a few factors to take a look at when choosing a platform:
● The company’s reputation
● Does the platform offer business insights?
● The platform’s CSR, or Corporate Social Responsibility statement
● Ease of use––is the platform easy-to-navigate?
● Partners and integrations
● How long the company has been around
● Number of customers already using the platform
● Does the service work online as well as in-store?
● What type of customer service is offered?
● And, of course, price.
In this dynamic industry, it’s also important to look at a company’s financial performance to determine whether they’re going to stick around. (After all, there’s nothing worse than rolling out a new service provider and introducing it to your customers, for it just to go bust in a couple of weeks.)
Keep especially close tabs on how companies perform in new markets to ensure that they’re upwardly mobile. Swedish fintech “pay later” provider Klarna, for instance, recently expanded into the Australian market after rocking it out in the U.S. Klarna CEO Sebastian Siemiatkowski recently told spoke with Reuters about his company’s growth:
“We are winning a new merchant every eight minutes, Siemiatkowski said. “Since the beginning of 2019, we have enlarged our merchant base by over 60,000 merchants to over 190,000 today.” Vend recently partnered with Klarna to bring it’s world-renowned “buy now, pay later” solution to boutique and SMB retailers across the UK. Click here to learn more about how Vend and Klarna can help your small business boost ROI today!