Buy Now, Pay Later (BNPL) is a popular payment solution for consumers. But how do Merchants know the differences between BNPL solutions and what they should look for in a provider? Greg Lipari, our VP of Strategy & Commercial Development and resident BNPL expert, breaks it down in this Q&A.
Q: It seems the industry can’t stop talking about Buy Now, Pay Later. Tell us why it’s so relevant to merchants and consumers?
A: BNPL is a compelling concept that fills an important gap in the overall payment stack. At its core, it provides a simple way for consumers to responsibly extend their purchasing power. Rather than take on costly credit card debt that can compound over time, consumers using BNPL can fund their purchase over a period of 6-weeks – interest free. This concept also resonates strongly for Generations Y and Z, who tend to be credit-averse yet represent an increasingly important segment of consumers. For merchants, BNPL can be a powerful profitability enhancement tool. When deployed correctly, BNPL results in a happier consumer, and a more profitable merchant.
Q: How does a BNPL solution add value to a business or retail outlet? To elaborate a bit further, why is it worth a merchant’s time to evaluate and deploy a BNPL solution?
A: BNPL does a couple of key things for merchants, both of which add value but in different ways. The most obvious is that it expands the purchasing power of the consumer, which drives higher average order value “AOV” (the total dollar value of a purchase). The second is that it can increase conversion rates (the likelihood that a consumer will complete their purchase), leading to a higher overall transaction volume. Together, these factors produce meaningful revenue growth. Often, this growth is available to merchants with minimal investment of time or capital. Many BNPL’s can be integrated into the merchant experience with limited development effort.
Q: How does a white-label BNPL solution match up to other offerings in the market? What are the advantages?
A: The white-label concept is really interesting because it allows merchants to participate in the key benefits of BNPL, without having to give up control of their customers to a third-party. Although they deliver on the benefits described earlier, branded BNPL providers have their own (not so hidden) agenda – customer acquisition. Branded BNPL providers are intent on acquiring their merchants’ customers into their own ecosystem – usually a shopping directory or an app. The goal is to get consumers to originate their purchases with the BNPL brand, and not the merchant. It is in this way, that branded BNPL’s aim to monetize the consumer – marketing directly to them, layering on financial services, or even promoting competing merchant brands. The unfortunate consequence of this is a shift in consumer loyalty from the merchant brand to the BNPL brand. This dynamic is likely to prove costly for merchants over time, especially those with strong brand equity.
White-label solutions instead focus on merchant enablement and can be used as a way to increase customer loyalty. Customers benefit from the same payment flexibility offered by branded BNPLs, except they are able to take advantage of this service while remaining within the merchant ecosystem.
Q: What are cost considerations that merchants should be aware of with a BNPL solution?
A: The most obvious costs to consider are the merchant fees. Generally speaking, merchants can expect to pay between 4 and 6 percent for a branded BNPL service. Our white-label solution can be up to 70% cheaper than that – partly because we leverage the ACH network to keep interchange costs low. It is important however that merchants also consider the potential cost of reductions to customer lifetime value (“CLTV”). Because branded BNPLs aim to originate purchases within their own ecosystem and not the merchant’s, the loyalty of a given customer to a given merchant is likely to decline over time, reducing the retention expectation in the CLTV calculation.
Q: What questions should merchants ask a BNPL provider when evaluating a solution?
A: When evaluating which direction to go when it comes to BNPL, merchants should be diligent in evaluating how their customers’ experience might change. They should ask questions like “How will my customers be marketed to?”, “How often will my customers receive communications from you?”, and “Will you ever promote competing brands within your shopping directory?”. Merchants should also be sure to clarify the fees associated with the service – both on the consumer and merchant side. “How will I be charged for using the service?”, “Do you charge any consumer fees, and if so, how much?”, and “How long is your rate good for?” are good starting points.