The Buy Now, Pay Later (BNPL) concept is nothing new. It started as far back as the 1840s when merchants allowed buyers to break large purchases like farm equipment, furniture, and pianos into smaller installments.
However, it wasn’t until the early 2010s that the concept started taking root in the eCommerce space. BNPL has especially gained traction over the last couple of years, with the BNPL market expected to be worth $3.6 trillion by 2030.
But what exactly is BNPL, and should you add this payment option to your eCommerce site?
What Is BNPL?
As the name suggests, BNPL is a flexible payment method where eCommerce websites, working with BNPL providers, allow customers to purchase items and complete the payment at a later date, usually in installments.
The BNPL process is very simple. When a customer chooses to buy using the BNPL option, they pay the initial installment, while the BNPL provider covers the balance. You (the merchant) process and ship the order to the customer like any standard order. The customer then clears the balance to the BNPL provider in installments over the agreed period.
BNPL presents a win-win situation for everyone involved. As the merchant, you get to make the sale to a customer who’d probably have forgone the purchase, while the customer gets to buy an item without putting down the entire amount upfront. Meanwhile, the BNPL provider makes money through processing fees or interest rates.
So, is it worth it to add a BNPL option to your eCommerce site? Here are six benefits of offering BNPL on your online store.
1. BNPL Leads to Increased Sales
There are many situations where a customer might be willing to make a purchase but not have the money for it, especially for high-ticket items. Offering a BNPL option makes the purchase affordable to such customers, leading to increased sales.
Think of it this way. A customer might have trouble affording a $1,000 item. If you let them split the payment into five installments, however, the purchase becomes much more tempting. This is not just speculation. Research by RBC Capital Markets shows that adding a BNPL option to your eCommerce site can increase conversions by 20% – 30%.
You can use the money from the increased sales to ramp up marketing for your eCommerce business to attract more customers or invest in assets to generate higher cash flow.
2. BNPL Boost Your Average Order Value
By making big-ticket purchases more affordable, BNPL not only increases sales but also makes people more likely to spend more than they would ordinarily spend. Again, most buyers will be more comfortable spending $50 per month for ten months compared to spending $500 in a single day. According to a Klarna report, offering BNPL can boost average order value by as much as 45%.
3. It Makes You More Competitive
The convenience of BNPL has turned it into a favorite payment method for a lot of consumers. A survey by CR Research shows that 60% of consumers have purchased an item under a BNPL arrangement. In response to this customer preference, more and more eCommerce brands are adding BNPL to their websites. Klarna, one of the leading BNPL providers, currently partners with over 450,000 retail brands, while Sezzle, another BNPL brand, has over 47,000 retail partners.
With customers showing a preference for the BNPL option, some customers might actively look for eCommerce brands that allow them to buy now and pay later. If you want to keep your eCommerce site competitive, you should add BNPL so that you don’t lose potential customers to the thousands of eCommerce websites that offer BNPL.
4. It Helps You Build Customer Trust
One of the upsides of a buy now, pay later option for consumers is that it provides them with a trial period for the product. Buying using the BNPL option allows customers to try out a product without paying the full price.
If the product works as expected, they’ll simply pay the installments as agreed. If they don’t like it, they can simply return it without worrying whether they’ll get a full refund. After all, they only spent a tiny portion of the product’s full price. This lowers the risk for customers and builds customer trust in your brand. It shows you have so much confidence in your products that you’re willing to allow customers to try them without paying the full price.
It’s good to note that, in the short term, this can increase your costs since you’re likely to deal with more returns. In the long term, however, the increased customer trust and sales will offset the increased cost of handling returns.
5. BNPL Reduces Cart Abandonment
A study by the Baymard Institute shows that 6% of customers abandon their shopping carts due to a lack of suitable payment options. Other customers abandon their carts because they feel they can’t afford the prices.
Offering BNPL on your eCommerce site provides a solution to both problems. It gives customers an additional and suitable payment option and also makes what would have been an expensive purchase more affordable, decreasing the risk of cart abandonment. According to a study by Mastercard, adding BNPL to your eCommerce website can lead to a 35% reduction in cart abandonment.
6. BNPL Increases Customer Lifetime Value
Ultimately, implementing buy now pay later on your eCommerce website allows you to increase your customer lifetime value, which is the total amount of money a customer will spend over their entire relationship with your business. Customer lifetime value is calculated by multiplying a customer’s average order value with the average customer lifespan and average purchase frequency.
We’ve already seen that BNPL makes purchases more affordable, increasing average order value. In addition, BNPL builds trust with your customers, which can lead to a higher customer lifespan and increased purchase frequency.
In other words, offering a BNPL option on your ecommerce website will result in customers spending more per order and increase the likelihood of customers making repeat purchases. Such customers are also likely to continue buying from your business for longer. Therefore, you’ll end up making more from your customers over the length of your relationship by simply adding BNPL to your site.
Wrapping Up
As online shopping becomes more ubiquitous, consumers are looking for more convenient ways to pay for their online purchases. Offering a buy now, pay later option on your ecommerce site is a great way to keep your business competitive in a highly-dynamic retail landscape driven by consumer preferences.
A buy now, pay later implementation helps increase your sales, boost your average order value, build trust with your customers, and reduce cart abandonment. The best part is that BNPL doesn’t present any risks for your business, so you should definitely consider adding BNPL to your eCommerce site.