Buy Now, Pay Later (BNPL) Scheme Guide

There are a lot of e-commerce, banks, and retailers who have set up “buy now, pay later” (BNPL) deals as this seems to be the trend for growing businesses that want to attract new customers and increase sales. Formerly, only people with good credit could get short-term loans from BNPL.

But now, many people can get them even if they don’t have a history of bad debt. The Covid-19 Pandemic made people, earn less, consequently spend less, and equally opened their eyes to the possibilities of BNPL Payment Options. Companies like Klarna and Laybuy are the three biggest BNPL providers in the UK. Clearpay is the fourth biggest. It doesn’t stop there. We also have KrediBee, ZestMoney, StashFin, and EarlySalary, too.

What Is Buy Now, Pay Later?

In banking, Buy Now, Pay Later (BNPL) is a type of short-term financing facility that lets people buy things now and pay for them later, as the name implies, often with no interest. Billing plans usually last less than a year, but they can last longer if you want. Consumers who use BNPL financing can find it easier and more flexible than credit card payment.

Buy Now, Pay Later is a credit facility that lets you allocate funds for your online shopping across several payments so that you don’t have to pay for everything together and at the same time. People who use BNPL typically make 3 or 4 payments over three months, and they usually do not pay interest on the cost of goods, but the payment plan always has a fixed date. If they borrow money to finance the BNPL, they will pay interest on this loan. This means paying for goods upfront is better than BNPL. However, BNPL does have numerous benefits.

How Does BNPL Work?

Are you confused about how the BNPL scheme works or how you can utilize it? Here is how Buy Now Pay Later works.

Shoppers purchase items from participating merchants or retailers. They select BNPL at the payment gateway and agree to the BNPL service provider’s terms and conditions. Such as a 25% down payment and the remainder of the balance owing in a sequence of interest-free installments by a specified date. Payments can be made by check or bank transfer; payments can also be made automatically using your credit card, debit card, or bank account.

Bear in mind that the merchant or retailer receives the funds immediately or the very next day. Customers can pay the entire balance in low to no interest installments.

While both BNPL and Credit card Payment entails delayed payments, BNPL is distinct from purchasing with your credit card. If you pay for items with a credit card, then you simply must make the minimum monthly billing due on the card. Interest continues to collect on the remaining balance until the balance is fully paid. But this won’t apply if you used a card with an introductory APR of 0%. However, you can maintain an indefinite balance.

In comparison, BNPL arrangements frequently do not include any interest or fees. However, they are subject to a predetermined payback schedule—generally many weeks or months, depending on the particular provider.

Major credit bureaus report some ‘buy now, pay later loans. If a bank submits this information, the loan may appear on your credit reports with its resultant effects.

There are several points to consider before getting into a BNPL arrangement. First of all, it’s critical to comprehend the terms of repayment for each BNPL facility you want to opt for so that you can prepare and budget for them. Furthermore, these terms may vary with each BNPL provider. Some provide weekly or bi-weekly durations, while others offer one to six months. Additionally, your interest rate, if any, may vary based on the different loan terms.

This understanding assures that you can fund not only your BNPL but also make timely payments. Failure to make a payment under a’ buy now, pay later arrangement may result in late and increased fees. Furthermore, take note that while you may qualify for a point-of-sale installment loan with 0% APR, approval is not assured. ‘Buy now, pay later’ platforms can levy interest rates comparable to or greater than those charged by credit cards.

Pros and Cons of Buy Now, Pay Later

BNPL has many advantages, which makes it an increasing choice for customers. The Pros of BNPL are:

• Increased conversion rate. According to a 2020 survey, 88.05 percent of online purchasing orders were abandoned, which is a 19% rise over the previous year. BNPL enables clients to purchase desired goods and services even when their financial situation is precarious. Additionally, it enables consumers to leverage the current deals and special discounts offered by different online stores.

• Increased customer satisfaction. A pleasant customer experience directly correlates with increased sales. Consumers are more content when they have a greater say in their buying decisions without the attendant financial stress.
• A larger Purchasing Audience. By spreading out purchases over three, four, six, or several months, online retailers may significantly reduce the cost of large orders, making them more affordable for buyers. Via this, they can reach a broader audience, including kids and teens with limited purchasing power.
• One method to encourage your customers is to offer various flexible payment systems and financing options.
• As a customer, BNPL allows you to acquire expensive essentials that you would have to wait many months to purchase otherwise.
• BNPL can assist you in managing your monthly expenses and prioritizing your purchases.

 What Are the Cons of BNPL?

• Increased merchant fees. Both the customer and the merchant are charged by banks and credit companies that provide BNPL services. However, BNPL systems charge higher costs than standard payment methods; these fees typically range from 2 to 6 percent of the purchase price.
• The accumulation of payments may become unaffordable as a result of greater accessibility. Consumer-friendly financial solutions, like those offered by some BNPL providers, consumer-friendly financial solutions have various drawbacks. Consumers may find themselves in terrible financial circumstances if they cannot pay their bills on time.
• Consumers may be tempted to spend more than they can afford.
• Your credit report can suffer if you fail to pay your bills on time. Other drawbacks of BNPL include shopping on the spur of the moment, purchasing over one’s means, high-interest rates, and late penalties. The credit card limit may become very low.
•  As a business brand, when problems emerge with your BNLP system, you incur the risk of tarnishing your reputation.

Providers of “buy now, pay later” services vary. Choosing the right bundle for your online business can be difficult because it is a relatively new system.

Understanding all the terms and conditions of your local utility BNPL provider is critical to finding the most cost-effective and efficient plan for your business.

BNPL Opportunities for Your Business

In the BNPL campaign, the credit facility is presented as a simple and ready-to-use solution. Companies that use BNPL services get paid immediately for the products they sell, unlike purchasers, who have to wait for their goods. To pay for the BNPL service provider’s services, a purchaser must make a payment to the retailer.

The following are the opportunities BNPL can bring to your business

Attract New Customers. It is possible to attract customers who were previously reluctant to purchase a product because of its high price by offering ‘Buy Now, Pay Later’ services. With BNPL, low- and zero-interest payment plans are now available to price-conscious consumers who want the best products at the lowest possible prices.

Maximize Your Profits and Increase Sales. When customers can spread the cost of their purchases over a longer period, they’re able to spend more money each month or week.

Reduce the number of abandoned shopping carts. The cart abandonment rate in India is 51%, according to statistics from India Marketers. Due to a shortage of payment choices, this occurs. Shoppers who use the ‘Buy Now Pay Later’ service are more likely to complete their purchases since it provides an easy way to pay for their purchases.

Maintaining Healthy Flow of Funds. Customers that use the BNPL method of payment receive their things right away. On the other hand, retailers and merchants are paid in full the next day. Since their money is not locked up with clients who will pay later, retailers, merchants, and small businesses who register with BNPL facilities can continue operating normally and adequately manage their cash flow.

Keeping Track of Inventories. The BNPL financing option enables a corporation to manage its inventory more effectively. Customers can easily place orders in greater numbers thanks to the hassle-free payment method, resulting in rapid growth in sales revenue. If a product is selling well or is particularly in demand, retailers may choose to refill their shelves. The BNPL credit facility option might help small businesses avoid overstocking or other difficulties.

Maintaining or Enhancing Customer Lifetime Value. Customer lifetime value (CLV) refers to the total amount of time a customer spends with a company over their lifetime. Over the previous few years, the cost of living has risen. It is the most difficult task to keep a consumer involved in these times. Here, your business can alleviate customers’ financial burdens and boost their spending power by integrating the ‘Buy Now, Pay’ Later option.

Final Thoughts

Not every purchase qualifies for the ‘buy now, pay later option. Some facilities can have a cap on how much you can borrow. But BNPL can be an appealing option to pay for minor online items. Credit checks aren’t required for most ‘buy now, pay later’ organizations. Others may do a severe pull on your credit, momentarily lowering your score.

Finally, examine return policies and how purchasing something now and paying later may affect your ability to return when and how you wish. While the seller may enable you to return the goods, you will not be allowed to terminate the BNPL arrangement until you produce documentation of the return’s acceptance and processing.

The BNPL sector is quickly expanding, and new providers are always launching different schemes. Because no two BNPL schemes are identical, it’s critical to verify how they work before enrolling or using them for your business. Generally, the BNPL scheme is a great payment option for your business. Companies with low credit scores can access loan facilities through the BNPL ecosystem, allowing them to expand their operations.