Buy Now and Pay Later is growing in Europe.
As a merchant in Europe, you must have heard about Buy Now Pay Later (BNPL) payment schemes. Probably you are already considering it. So, what is it, and why is it becoming so popular?
Buy Now Pay Later is a fast-emerging alternative payment method. It allows customers to buy a product and make the payment later within a specified time. Repayment can be done in installments and are usually interest-free. Sometimes they are also referred to as point-of-sale installment loans.
They are already massively popular in the US and Australia and are clocking rapid growth in Europe, particularly in the UK. Data from Finder.com shows that four in ten consumers in the UK have used a BNPL service, while over half (52 percent) reported using BNPL services more during the pandemic.
Some of the major Buy Now Pay Later companies operating in Europe include Klarna, PayPal, Laybuy, and Clearpay. Of these, Klarna is the most popular one and is available in multiple countries across Europe.
How does Buy Now Pay Later work?
Buy Now Pay Later allows customers to buy a product or service and pay for them in installments over time. Hence, customers can easily buy more expensive products and spread out their payments. Thus, customers are more likely to buy something that they otherwise might not have money for or might be unsure about paying the entire amount at one go.
Let’s assume you are a merchant offering third-party Buy Now Pay Later methods like Klarna or Clearpay. Your customers can use any of these methods to pay for their purchases in installments. They are not charged any interest, provided they pay back on time.
But you get paid the full purchase amount immediately by the BNPL service provider at the time of purchase. The burden falls on the BNPL provider to recover the money from the customer. For every transaction, you have to pay the provider a commission along with a fixed fee.
Buy Now Pay Later methods are great for you if you sell high-value consumer goods. Or if you are looking to increase your average cart size and reach new customers. They might not be a good fit for you if you are price-sensitive, as BNPL methods tend to charge higher fees.
How can Buy Now Pay Later benefit e-commerce retailers?
Buy Now Pay Later can have a big impact on your e-commerce business. There are several advantages when you offer them along with other payment methods on your payment gateway.
Boost your Sales
Buy Now Pay Later is attractive to those customers who cannot afford a product at the time of purchase or are not comfortable paying the entire amount up-front. Hence, it increases the likelihood of these customers buying a product because they can pay later in zero-interest installments.
Increase customer loyalty
Customers like to buy from companies that offer them more choices. BNPL methods give them flexibility. And because BNPL service providers offer loyalty programs to their users, customers are more likely to shop with e-commerce retailers that allow them to pay through these methods. They are also more likely to come back for repeat purchases, which further builds loyalty.
Improved customer lifetime value
BNPL can influence the frequency or order value of your regular customers. When they are more engaged with you, they are more likely to buy from you and over a longer period of time. This helps to improve the customer lifetime value.
Higher average cart value
Because customers can pay in easy installments, they are more likely to increase their average cart value and shop more from you. This translates to higher sales for merchants.
Lower return rates
BNPL makes purchases more feasible for customers because they can pay in installments. Hence, they are more likely to stick with their purchases, which in turn lowers your return rates.
Better customer experience
BNPL offers customers the flexibility to shop and pay as they want, which helps to improve loyalty and leads to better sales. This creates positive customer experiences and encourages repeat business.
Why is Buy Now and Pay Later suitable for Europe
Research from Germany-based online research firm yStats.com indicates that the European market is well suited for BNPL services. A similar method, payments by invoice (also called pay now invoice later), has been present in some markets, including Germany.
Consumers in Germany prefer “transparent conditions” and “no interest rate” from BNPL services. In the UK, consumers have a strong preference for installment payments over paying the full amount later.
Throughout 2020 and 2021, large BNPL providers saw scorching growth. Sweden-based Klarna expanded its services in Spain in 2020, and in February 2021, announced plans to offer banking services in Germany. PayPal also opened its BNPL services in France in July 2020. Several newer BNPL companies have also raised significant funding during the last few months.
Recently, the European Commission proposed updates to the existing consumer credit agreements to include BNPL services. The UK’s Financial Conduct Authority is also planning to introduce new regulations for BNPL products in 2021.
How to choose the best Buy Now Pay Later product?
There are several Buy Now Pay Later products available, depending on where you are in Europe. You have to choose the product that would be the best fit for your business. A payment service provider can advise you on which Buy Now Pay Later solution to choose, based on the size and complexity of your business. They can also help you set up the solution and ensure you get the best out of your payments.
Jose Augustine is the Chief Business Development Officer at Novalnet with extensive experience in European payment industry and a knowledge powerhouse.