Accounting & Finance
Finance Disrupter Buy Now Pay Later Pros and Cons
The word ‘disrupter’ is both exciting and alarming depending on how it personally impacts you.
For consumers, the PNBL (Buy Now Pay Later) is welcomed as another payment option. But is it really what eCommerce stores want, or are have they been railroaded into accepting it due to competition? Let’s find out.
We begin with the big news of a company buyout. BusinessInsider, Australia report US finance co. Square will do an all-stock buyout of Australian PNBL AfterPay for a whopping $39 Billion. This finance disrupter has exploded online, and C&R Research has got the statistics on BNPL to prove it.
Love-Hate Relationship with Consumers
However, it’s a love-hate relationship with the consumer. Using buy now pay later is catching consumers out. 66% saying they know it’s risky and could hurt their credit score. For example, Commit to too many purchases using BNPL within the 4-week payment period, and you may find you’ve overextended your finances and may start missing the payments.
Late payment fees, damaged credit score.
When payments are not made, late payment fees apply (one revenue stream for the BNPL providers), and the worst is yet to come. You may suffer damage to your credit score. Things get really tricky going forward if you’ve got a bad credit score. According to CNBC, there are eight side efforts to having a bad credit score, including:
- Loss of career opportunities
- Higher insurance premiums
- Failure to qualify for loans or you pay much higher repayments
- Harder to qualify for a mortgage
- May miss out on renting an apartment
However, consumers have fallen for BNPL in a big way. There are many reasons for its popularity, including:
- Spread the payments over four weeks
- Zero or low interest
- Fast approval
- You can buy more
- Payments made automatically
- BNPL is fast-growing, particularly with online retailers
Online Retailers and the BNPL model
So how does BNPL fair with online businesses – do they love it or hate it?
One major reason to love BNPL is the potential increase in sales a business will get as soon as they offer the payment option.
Less shopping cart abandonment
Spreading the payments makes the decision to purchase that much sweeter. Online businesses can expect less shopping cart abandonment when buyers know they can trust the payment process, which is a boost to the reputation of a new eCommerce store.
Plus, buyers love the instant gratification of using the product or service but spreading the payments for over four weeks, at usually 25% each instalment. What’s not to like about this result?
Shopping cart abandonment has been a headache for marketers for years, and now, while it still exists and some consumers still need the nudge to purchase with a discount applied or free gift, it’s fair to say BNPL has worked its charm on hesitant customers.
More new business
Not only will there be more sales, particularly from regular customers, but there’s also a high probability many more new customers will purchase when they can use pay now buy later. This should be welcomed news to marketers who can work with customer data to create email marketing messages, use SMM and PPC to turn the new customers into frequent purchasers.
Higher transaction fee
Higher revenue is desired. However, the BNPL service is not free. Businesses do pay a merchant fee, but they’re used to it as credit card transactions incur a transaction fee too. However, be prepared to pay twice as much interest for the BNPL service. Credit card fees are typically 2 – 3%, whereas the BNPL is 5-6%
What’s to love about BNPL for merchants is unlike a credit card where the provider has a relationship with the cardholder, BNPL is more like a short term loan provided by the eCommerce store or merchant.
Third-party payment gateway
Some of the names in BNPL include Swedish fintech co – Klarna, one of the pioneers and heavyweights, along with Affirm – a USA company and Australian co. AfterPay, which is soon to be swallowed up by USA’s Square Inc. (mentioned above).
There is definitely more ‘feel-good’ between merchants and customers with the BNPL payment method. Yes, it costs businesses more to provide it, but the positives outway the negatives- at least for now.
We know regulation will happen, and it’s likely to take the shine off what is the darling of finance disrupters.
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