Digitisation and globalisation have shrunk the marketplace and placed it right onto the palms of the consumer. Devices such as smartphones and mobile devices have also transformed the traditional interaction between merchants and consumers. With e-commerce becoming the new norm in shopping, merchants are looking for more unique and better solutions to lure customers.
One such offering aimed at enhancing the customers’ online shopping experience is Buy Now Pay Later (BNPL). While at first glance, BNPL may seem akin to credit cards, it has a lot more to offer. Let’s discuss a few aspects of this system and understand just why is it becoming so popular.
What is Buy Now Pay Later?
As the name suggests, the BNPL system works on the premise of buying right now and paying at a later stage. It is quite like the old-school khata system where you buy from your local Kirana merchant and settle the bill at the end of the month – one bill for multiple purchases. In essence, BNPL is like a digitised version of the khata system.
How does BNPL work?
Simply put, you can purchase products now and pay for them at a later date. Just like a credit card, with BNPL, you are allowed a credit limit. You may make multiple purchases with BNPL and settle the dues fortnightly or monthly, depending upon your service provider. This means that you don’t need to make payments for every transaction. Instead, you pay only once – at the end of each billing cycle.
Why is BNPL popular with e-commerce sites?
One apparent reason for its acceptance is the benefit this service brings to the table for both merchants as well as customers. Here are a few reasons why BNPL is gaining traction in the e-commerce space:
1. Customers get a superior shopping experience with BNPL
Making payments with BNPL is as simple as digital payments can get. It eliminates the need for disclosing personal financial details, and this expedites the payment process. The swift payment process also means that consumers encounter near-zero instances of payment failure – resulting in an effortless and enjoyable buying experience.
Unlike credit cards, BNPL does not burden the consumers with any hidden fee or charges. It is worth noting that this service is free of cost for consumers. Further, it ensures that users are aware of the credit limit and billing cycles. Another benefit is that minimal penalties are levied on late payments.
c. Safety & Security
BNPL does not mandate customers to share their card, bank or any other financial details. This lowers the exposure to card theft and frauds, thereby making this method a safe and secure payment option.
2. Merchants experience improved numbers in key metrics with BNPL
a. Customer Loyalty
By offering 1-tap easy checkout and hassle-free transactions through BNPL, merchants avail several benefits. Some of these include reduced cart abandonment, increase in conversions and higher frequency of purchase. The ease of using BNPL translates to consumers returning to the site more often, thereby fostering loyalty.
b. Efficient Credit Collection
The BNPL system aggregates the dues of the merchants and settles it once or twice a month, depending upon the service provider. This means that merchants get access to funds at regular intervals, unlike credit cards where settlements might take 45-60 days. This is particularly favourable for MSME businesses where cash is a primary factor in keeping the company running smoothly.
It is no surprise then that more and more merchants are offering BNPL on their e-commerce sites. Consumers are clearly shifting from Cash of Delivery (COD) to digital payments at a rapid pace. In particular, they are transitioning to the BNPL mode of payment for a more seamless shopping experience.