Today, “buy now and pay later” is only a small part of your card’s total spending. But in a pandemic-fueled e-commerce boom, this alternative model could be ready to confuse the US 8-ton payment card industry. With online shopping soaring during a pandemic, “buy now, pay later” (BNPL) companies dominate the buzz and are money-sensitive with seamless late-payment options that bypass traditional rates. Attracts online shoppers.
With the global blockade increasing the amount of e-commerce up to 46 years ahead, consumers and retailers will buy now and pay later to ease financial pressure and demand for online shopping. BNPL players such as Klarna, Afterpay, and Affirm are becoming popular names due to the growing number of new users and the proliferation of transaction volumes.
The supply chain is confused and production is limited. For weeks, the headline has given buyers a clear message: Buy early this Christmas season. In recent years, early risers may have booked Christmas gifts and planned to pay for the purchase over time. However, many retailers, including the country’s largest Wal-Mart, have abolished or reduced these programs. One reason for this is that there are new tools available to buyers to distribute payments.
A popular option for consumers is to buy now and pay later. Retailers are also big fans. Point-of-sale loans are easy for retailers to manage, and research has shown that these options lead to larger shopping carts and greater customer loyalty. RBC Capital Markets estimates that the BNPL option will increase retail conversion rates by 20-30% and average ticket size by 30-50%. According to Hemal Nagarsheth, Associate Partner of Kearney’s Financial Services Practice, installments provide consumers with options and convenience when it comes to budget management and shopping. He also said the option builds trust between retailers and consumers, leading to “increased sales, increased average store size, and increased purchase frequency.”
Buy now the postpaid plans offered by companies such as Australia-based Affirm, Afterpay, and Klarna in Sweden are especially appealing to young shoppers such as Gen Z and Millennial consumers who are coveted. Each plan varies from the number of payments to specific terms and conditions, but the main similarity is that it promises a small number of even payments in a relatively short period , with no hidden charges. In many cases, the plan is interest-free. The coronavirus pandemic has accelerated the penetration of e-commerce. Retailers who had neglected checkout experience in the past suddenly had to find a way to attract and retain customers online. And unlike stationary, the world of potential online customers is almost endless.
In March 2020, when the Shelter-in-Place obligation came into effect, US shopping traffic dropped to virtually zero overnight. This has exacerbated an already difficult environment for merchants and retailers facing fierce competition with online e-commerce players. JCPenney, J. Many major retailers, including Crew and Neiman Marcus, filed for bankruptcy during the blockade. The increased adoption of e-commerce has opened up new and competitive opportunities. Due to the declining ability to shop in stores, retailers need a way to quickly understand omnichannel shopping activity in a highly competitive environment.
According to McKinsey, there is discretionary spending on apparel, shoes, furniture, and other categories, unlike major shopping categories such as groceries and household items, where online purchases increased by 1530% during a pandemic. According to a survey, buyers’ intentions have declined significantly. According to Chris Ventry, vice president of global advisory group SSA & Co, retailers can “turn [consumer]’s wishes into a sale” with installments. “For debit card users, the potential for BNPL to expand interest-free payment plans is appealing, and ultimately attractive enough to drive conversion, which is the main goal of all digital commerce sites.
Top Similarweb Analysis 100 US fashion and retail websites have compared 50 dealers who offer to buy it now at checkout and 50 dealers who do not. On average, sites with the BNPL option had a conversion rate of 6%, while sites without it had a conversion rate of 4%. With increased revenue and increased conversions, the additional transaction costs retailers pay to fintech companies are also worthwhile. Zandhuis states that retailers pay BNPL companies a transaction fee that is 2% higher than the transaction fees charged by traditional credit card companies. The additional income is greater than the cost.
This program has advantages over traditional reserves where retailers need to store items purchased in the field, while customers pay in installments over time. More and more retailers are using stores as mini-fulfillment centers to serve online orders. Storage space is limited in this model.
The concept of installments and point-of-sale finance isn’t new, but the providers who buy now and pay later are digital natives, preparing the world for the future. In the future, fair, flexible, and transparent payments will play an increasingly important role in creating a prestigious customer experience and increasing sales conversion.
As BNPL companies grow rapidly, the industry as a whole continues to grow into closer and more frequent customer relationships. Affirm’s savings and Klarna’s reward offerings are just some of the larger ambitions of some BNPL companies aimed at providing more flexible and cautious spending to consumers, which is a regional regulator. Be sure to monitor.
Penulis: Akbar Nugroho | Illustrator: Diva Maharani