Should you offer Buy Now, Pay Later (BNPL) plans?
JP Arnaud-Marquez
·August 4, 2022
If you sell a pricey product, it can be hard to get customers to sign off on a purchase that doesn’t always fit into their monthly budget.
For example, nearly 82% of purchases in the travel industry – such as an all-expenses paid tour – are abandoned during the shopping cart stage.
But by partnering with a “buy now, pay later” (BNPL) solutions provider, you may be able to optimize your customers’ chances of signing off on an expensive purchase by softening the blow. Using BNPL enables your customers to finance a big purchase under an installment plan over a period of time, so that it’s more affordable for them to fit into their monthly budget.
Here’s what you should know about offering a BNPL solution.
How does BNPL work?
Many merchants are partnering with BNPL solutions such as Affirm, Sezzle, Klarna, and others to encourage customers to bite the bullet on bigger purchases by splitting it into installment plans – often with no or minimal interest on the purchase.
With Affirm, for instance, customers can choose their preferred payment terms, and are able to choose a no-interest plan if they commit to paying it off over an eight-week period, up to a 10% APR if they choose to pay the loan over a 12-month period.
Unlike with credit card payments, the customer won’t face any penalty fees if they miss a payment, so they often prefer this payment option if they’re not ready to commit to the entire purchase price up front.
BNPL is growing in popularity as a payment method among all generations, but especially among Gen Z and Millennial shoppers: 36% of Gen Z customers and 41% of Millennials had adopted a BNPL plan by 2021.
It’s a win-win for retailers, too: Their BNPL partners pay them the full amount of the customer’s purchase price up front, so they’re not assuming any risk of default on the payment plan. Merchants typically pay a small percentage of each transaction to the BNPL provider, often between 2% and 8% of the purchase price.
Why embrace BNPL?
By partnering with a BNPL provider, your brand will be able to boost both conversions and average order value – often by a significant amount.
For instance, RBC Capital Markets found that BNPL payment plans typically increase conversion rates by 20 to 30%, and boost the average per-purchase price by 30 to 50%. The typical order value for a BNPL purchase is $200 – about double what a customer would likely spend if the payment service was not available, claims Ally Lending President Hans Zandhuis.
Customers who don’t want to pay with credit cards due to fear of missing a payment or paying high interest rates on their balances are embracing this payment strategy, as are customers who lack access to credit.
And a BNPL plan can make big-ticket purchases more palatable for many consumers: For example, Peloton sells its nearly $2,000 exercise bike via Affirm, offering customers the option to pay just $50 a month over a three-year period.
In fact, by refusing to offer BNPL solutions, you may end up missing out on sales to your competitors. One study found that 46% of department store customers said that they’d switch to a retailer that offers BNPL over one that doesn’t.
Processing returns with BNPL
When it comes to your returns policy, BNPL may complicate things a bit, but shouldn’t make it too tricky.
Since customers receive their merchandise before they’ve finished paying off the item, they may decide to request a return before the item is paid in full — which means they’ll need to continue the payment plan even receiving a refund. That said, the refund should provide them with enough capital to pay off the loan in full, minus any interest payments. In general, the refund will be processed to the BNPL provider, rather than to the customer themself, and the BNPL provider will provide the customer with the balance due.
Even though the BNPL provider is ultimately processing the customer refund, the customer will still be likely to associate the transaction with your brand, so it’s worth looking up BNPL refund policies in advance to ensure that they won’t leave a negative impact on your brand.
In some cases, you might even decide to set a policy that disallows refunds for products purchased via BNPL, if there’s a chance that the BNPL provider will make refunds difficult. Whatever the case, make sure that your returns policy is crystal-clear, and that the customer understands their options if the product is defective or doesn’t meet their satisfaction for any reason.
Who is BNPL right for?
Partnering with a BNPL provider is an especially good fit for big-ticket or luxury brands – such as brands selling high-end fitness equipment or vacation packages. Merchants who offer BNPL as an option are likely to see higher conversion rates on purchases that customers might otherwise abandon because they don’t have the capital to cover the entire purchase at once.
That said, BNPL can also help to boost revenue for brands like clothing retailers that sell lower cost items, by encouraging customers to stock up on a larger quantity of items at once. You can incentivize higher purchase values through offering limited time promotions that encourage customers to stock up all at once, with the option to pay off their purchases over time.
Ultimately, choosing a BNPL partner is a great option for most brands, as it’s always valuable to offer your customers a wide variety of payment options so that they can choose what works best for them. Just make sure to carefully check terms, pricing, and reviews of the BNPL partners you’re considering so that you can choose a solution that will serve both you and your customers well.
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