DNPL is a service that provides an alternative to traditional installment purchases, which can be arranged without entering into an additional agreement with any credit organizations. This service is interest-free and is primarily used for online shopping. Unlike credit or installment purchases, the customer's creditworthiness is not assessed, so this service is available to everyone.
According to statistics from last year, approximately 360 million people worldwide used BNPL services, and it is projected that the global BNPL market will grow by $41.83 billion between 2022 and 2026.
The current and future popularity of the service is primarily due to its ease and speed of use, as well as its favorable terms. BNPL services work according to the following algorithm:
- The buyer chooses a product from a list of those covered by the BNPL service.
- The purchase is made through the BNPL service offered by the website.
- After this, the system approves the purchase request and initiates the first payment (usually 25% of the total cost of the product) from the selected credit card.
- The remaining balance is divided into planned payments. The system distributes it equally and determines the intervals at which the money will be debited from the card used to make the first payment.Providers offer different numbers of payments and conditions. For example, PayPal may allow a fixed number of payments ("Pay in 4"), while some other providers allow the customer to choose the desired number of payments over three or twelve months.
Using BNPL has its own servicing peculiarities for business owners.
Retail sellers (owners of online stores) are offered three payment options:
- A fixed monthly subscription fee regardless of the amount or number of transactions.
- A one-time fee in the form of a percentage of the value of each transaction (usually between 2-8%).
- A transaction fee charged at a certain fixed rate, regardless of the transaction amount.
Choosing one of the three payment options should depend on the specific circumstances of the business, but in any case, the service increases profits by significantly increasing the overall volume of sales.
Well-known Buy Now Pay Later services
With the rise of online shopping during the pandemic, there has been an increase in options for customers to make purchases. Currently, the number of BNPL services is growing. Let's take a look at a few examples of the most popular companies offering customers instant financing:
Klarna
Currently one of the most popular BNPL services, Klarna has its own integrated app for purchases. Over 85 million customers currently use its services, and Klarna collaborates with hundreds of thousands of merchants worldwide. The service offers customers financing for up to 36 months. There are no fees or interest rates if payments are made on time. Payments are split into three installments, with the first installment due at the time of purchase, and the next two due 30 and 60 days later respectively. The app has its own loyalty program, which is attractive to customers.
PayPal Pay in 4
Allows customers to split their purchase into 4 payments, with equal interest-free payments. The first payment is due at the time of purchase, and the next three payments are deducted every 2 weeks from the time of the first payment. Each time, the funds are automatically deducted from the customer's PayPal account using their preferred payment method. The service allows purchases of between $30 and $1,500.
Sezzle
Sezzle is another e-commerce solution that allows customers to pay for their purchase in 4 installments over 6 weeks. The first payment must be 25% of the total cost. There is no interest rate for the customer. Sezzle has the most flexible payment terms among BNPL apps. Customers are offered an additional 2 weeks to repay their debt if needed.
Affirm
Affirm is an alternative to traditional financing. It offers customers instant financing for online purchases by making interest-free payments. These can be 4 payments every 2 weeks or monthly payments over 3, 6, or 12 months.
Advantages of BNPL
The advantages for the buyer are obvious: the ability to make an instant purchase without having the required amount on the card, without considering the credit rating, and without undergoing additional solvency checks.
Thus, the business owner:
- Reduces the number of "abandoned carts" as more customers make purchases without hesitation.
- Increases the number of sales.
- Enhances the loyalty of their current and potential customers.
Buy now pay later is a service that provides the buyer with more flexibility in choosing the payment method and term. BNPL can help business owners increase conversion and improve the customer experience.
