What Should Merchants Take Into Account Before Offering BNPL?

What's BNPL?

Buy Now Pay Later (BNPL) allows customers to purchase goods and services at a specific time. The customer is then required to pay the instalments in installments over a period of time. This is a popular option for young people, or as they prefer to be called, "Gen Z"'ers. BNPL can also be used by those who are new to a country, don't have credit scores, freelancers, or do not have a fixed income. Brand sites and e-commerce are acutely aware of the need to target the digital generation. This includes the Millennials, Gen Z'ers, and other people with strong purchasing power and intent. Online shopping was growing rapidly even before the coronavirus became an everyday part of our daily conversations. This can be attributed to the increase in Internet and mobile device use across the globe. Online shopping was only accelerated by the pandemic. Experts believe this is a shift in consumer behavior and not a temporary phase.

BNPL is a short-term private loan. The person who provides the loan is taking a risk on your ability to repay it. This loan is not like any other loans. They cannot take possession of the goods or services if you fail to repay the loan. Buy Now Pay Later is not a credit-card loan. Credit cards offer a line of credit with a turn around that must be maintained by regular payments. You pay such loans in monthly payments, usually for four to six months.

You might wonder how a BNPL works. A BNPL works more as a replacement for Credit Cards. For instance, when you purchase from the Simple app, your invoice is sent every 15 days. 

Why Should Merchants Use BNPL

To convert browsers to customers: Browsers can be found around the internet. They will pick a few things to show they are interested in purchasing them. Introducing BNPL to a business is a great idea, since it will allow you to convert potential customers from such browsers. It could be all a businessman wants.

Enhancement to the customer's life cycle:. This customer life cycle includes many factors such as conversion, retention, marketing, and so on. From the moment a customer hears about you, to when they make a purchase, the customer lifecycle encompasses everything. Your customers will be more impressed by your business if they have access to BNPL options.

A BNPL option may appeal to customers who have been reluctant to purchase the products due to their high price. They might be able to purchase the product or service with BNPL.

Increased sales. Since BNPL introduces new customers to the company and persuades them to purchase products and services, it increases the business's sales. The owners of the business may not need to resort to discounting in order to increase revenue.

Before BNPL, Merchants Should Consider These Things

Merchants should be aware that their potential revenue boost may not exceed the cost of BNPL financing its customers.

A merchant will usually pay a percentage to a third-party financial tech provider for each transaction he makes. A merchant must ensure that the margin on the product is large enough to support the charge.

Another problem with BNPL financing might be that it may be confusing for some consumers who don't feel as comfortable with technology and prefer a more traditional buying experience.

Before using BNPL, a merchant should weigh all options and consider the pros and cons. Merchants can increase conversion rates by adding the correct payment method and following a meticulous process. This will create a one-stop payments system that will drive sales and generate global ecommerce revenue.

Benefits of using the BNPL

These loans can be used to help you pay for your expenses. These are just a few:

It is better than paying the card charge: While credit cards can be convenient, they can also cause great financial problems if you are unable to repay the loan on time. The bank may apply a higher interest rate if repayments are not made by the deadline. These loans are based on compound interest and can result in huge losses if they are not paid on time.

BNPL's fee structure is more transparent: While credit cards can have opaque and unclear terms and conditions and fees, the BNPL fee structure is comparatively simpler. BNPL does not charge interest as its main revenue source. Instead, they have a clear revenue system that includes management fee and late fees (in the event of non-payment).

Better than loans: BNPL allows you to pay in instalments for goods and services, allowing you to live within your means. The terms of payment usually include late fees and management charges, which is often more practical than a loan. You don't have the unpleasant characters to deal with if you are late paying.

BNPL is a good way to build credit history. In countries where it may be difficult to establish credit and qualify for credit cards to obtain lower-interest loans, people must start from the bottom and work their way up to the more important and high-interest credit options like store cards. BNPL may be a good alternative and an affordable way to build credit history.
There are some disadvantages to using BNPL

There are risks and disadvantages to anything that is good. These are some of them:

Avoid consumer protection supervision limits: There is no way to prevent consumers from spending too much on credit. It is impossible to limit the amount of debt a person can have for instalments relative their income. Banks ask for documents such as salary and other documentation to ensure they comply with these regulations. BNPL isn't structured in this way, so consumers may be able to dodge these restrictions entirely.

It makes everything seem low-priced. You buy more than you need when you only have to pay a small amount of the principle, rather than the entire amount that is interest-free. Continue doing this and you will be on the road to unjustifiable spending.

BNPL encourages excessive consumption. Previously, spending that was once a 'nice-to-have' suddenly becomes a necessity due to the fact that you feel more in control of your finances now. BNPL can prove to be a deadly combination for those who lack financial discipline and impulse control.

BNPL can ruin your credit history. It can do the exact same thing as BNOL, which can help you build your credit history with a number of late repayments.