In today's competitive business landscape, it's vital for business owners to continually seek new ways to enhance the customer experience, particularly when it comes to payment options. One such solution that has transformed the way many customers shop is Buy Now, Pay Later (BNPL) services.

This article serves as an introductory guide for merchants to understand what BNPL is, how it works, how it is different from credit cards, and how it can benefit merchants.

What is BNPL?

BNPL stands for Buy Now, Pay Later, which is a short-term financing option that allows consumers to make purchases without credit cards and split the cost into interest-free installments, with payments spread over a predefined period.

How does BNPL work?

When a customer chooses BNPL at checkout, the total amount of their purchase will be divided into equal installments with no interest. The customer pays the first installment upfront and receives the item. Subsequently, the remaining installments are automatically deducted from the customer’s chosen payment method on a predefined schedule.

This lending option offers several benefits for customers. It provides budgeting flexibility by allowing them to spread out payments over time, making large purchases more affordable. Customers can also avoid accruing interest charges by using BNPL instead of credit cards.

BNPL vs. Credit Cards: Understanding the Differences

While BNPL and credit cards share similarities in terms of offering deferred payments, they also have distinct characteristics:

• Structure: Credit cards provide a revolving line of credit with a set spending limit, whereas BNPL services facilitate installment-based payments for specific purchases.

• Interest and Fees: Unlike credit cards, BNPL generally doesn't charge users any interest or annual fees, which means users will only have to pay for the price of the product itself if they pay the installments on time.

• Credit Checks: BNPL services typically have more relaxed credit requirements, making them accessible to a broader customer base, including those with limited credit history.
  
  

The Surge in BNPL's Popularity

According to Juniper Research, BNPL payments are expected to account for nearly a quarter of all global ecommerce transactions by 2026, up from just 9% in 2021, indicating the rapid adoption of BNPL as a preferred payment method among consumers worldwide.

Several factors have contributed to the rise of BNPL in recent years:

• Convenience and Ease of Use: BNPL services have simplified the purchasing process, requiring only a few steps for approval. Consumers can make quick decisions at the checkout and enjoy their purchases without worrying about immediate payment.

• Appeal to Millennials and Gen Z: BNPL payments can be easier to manage and is more preferable among younger consumers. According to the research company PYMNTS, nearly 60% of consumers say they prefer BNPL over credit cards.

• Financial Inclusion: BNPL has bridged the gap for individuals who may have limited access to credit cards or prefer to avoid traditional lending institutions. It also offers an alternative for those who prefer not to accrue credit card debt.
  
  

BNPL Benefits for Merchants

With more and more people opting to use BNPL as their preferred payment method, many merchants are thinking of offering BNPL as a payment option. Before you decide whether BNPL is right for your business, let’s take a look at the benefits of BNPL for merchants:

• Increased Conversion Rates: By providing a more flexible payment option, BNPL can attract more customers and reduce cart abandonment rates, leading to higher conversion rates.

• Access to New Customers: BNPL services can help merchants tap into previously underserved markets, such as younger consumers or individuals with limited credit history, expanding their customer base.

• Boost in Average Order Value: Offering BNPL options can encourage customers to make larger purchases than they would if limited to immediate payment methods, thus increasing the average order value.

• Improved Cash Flow: Merchants receive upfront payment from BNPL providers, ensuring they have immediate access to funds, even for larger purchases. This can help manage cash flow and alleviate financial strain.

• Enhanced Customer Loyalty: BNPL services often provide a positive shopping experience by offering convenience and flexibility. This can contribute to customer satisfaction and foster loyalty, leading to repeat business.

• Marketing and Promotional Opportunities: Collaborating with BNPL providers can enable merchants to participate in special promotions and marketing campaigns, attracting new customers and driving sales.
  
  

How does BNPL work for merchants?

After signing the contract with a BNPL provider, you can integrate their service into your checkout process. Then, you can promote the option to customers and encourage sales by advertising BNPL on your product pages.

When a customer chooses to use BNPL, the provider will conduct a soft credit check to determine their eligibility for the payment plan. Once approved, the BNPL provider pays you the full amount owed by the customer at the time of purchase. The customer then makes an initial payment to the provider and continues to pay the remaining balance in installments.

It’s important to note that while the service is usually interest-free for customers, as a merchant, you pay a transaction fee for each completed purchase, typically ranging between 2% and 8% of the sale cost. This is similar to the arrangements that traditional credit card companies have with merchants.

How can merchants implement a BNPL solution with Opn Payments?

Merchants interested in offering BNPL as a payment option to their customers can directly collaborate with a BNPL provider operating in their country. This allows for greater customization over the implementation of BNPL within the merchant's existing payment infrastructure.

However, merchants can also implement it through their payment gateway provider. By leveraging the existing integration capabilities of your payment gateway provider, you can potentially streamline the implementation process and enjoy the benefits of BNPL without extensive development work.

Opn Payments has partnered with Atome to enable BNPL as a payment option for Opn Payments merchants in Singapore and Malaysia to provide a streamlined and hassle-free implementation process. Contact our sales team today to learn more about how you can leverage BNPL and offer interest-free payments to your customers.