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The Benefits of Buy Now Pay Later

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20232 min read

If you’ve shopped online recently, you may have noticed the ubiquity of “Buy Now, Pay Later” financing. Services like Klarna and Afterpay have become standard options at checkout, allowing customers to split their bill into a series of smaller payments. So, what is Buy Now Pay Later and what are its benefits to businesses? Here’s a closer look at how it works.

What is Buy Now Pay Later?

As the name suggests, Buy Now Pay Later is a payment service that allows customers to delay the final bill. Consumers might not want to wait until payday to make a purchase; and with Buy Now Pay Later they’re able to checkout without full immediate payment. In most cases, they’ll pay for the purchase over a small series of installment payments (usually four) instead. While credit cards involve high fees, BNPL is simple, transparent, and paid off quickly.

For more information, you can read our guide “What is Buy Now Pay Later” which offers a full breakdown of the definition and uses.

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How does Buy Now Pay Later work?

There are several services that are lumped into this category, but when looking at how Buy Now Pay Later works you can see there’s some variation. The general steps involved remain the same:

The customer makes a purchase and chooses the BNPL later option at checkout
Approval is granted in seconds
The customer makes a small down payment, typically 25% of the full purchase amount
The remainder is paid to the BNPL service provider in a series of installments

What are the benefits of Buy Now Pay Later?

For customers, the benefits of Buy Now Pay Later are clear. While credit cards have a stricter approval process and higher fees, BNPL offers near-instant approval with looser lending restrictions. Buy Now Pay Later services only run a soft credit check that doesn’t impact the customer’s credit rating, and there are low or interest-free rates. It also gives immediate access to more expensive items, which is partly whyan estimated 4 in 10 Americans and 60% of Millennial shoppers planned to use this financing option over the 2021 holiday season.

What about the benefits for merchants? Here are a few reasons why you might want to consider offering BNPL at checkout.

1. It’s accessible to a wide range of customers.

By offering more flexible payment methods, customers can complete checkout even if they are still waiting for this month’s paycheck. They’re also able to access credit even if they have a less-than-perfect score, which can lead to more sales for your business. It’s a more inclusive payment method that increases conversion rates as a result.

2. It can help you attract new customers.

Offering BNPL could make your business more attractive to new customers who prefer this payment method.The rate of American shoppers using Buy Now Pay Later rose 80% between 2020 and 2021 alone, with millennials comprising 40% of BNPL users in 2020 and Gen Z quickly catching up. If you’re interested in attracting a younger demographic, you may want to consider adding a BNPL service to your checkout process.

3. It encourages customers to purchase higher value goods.

When they’re able to spread the cost out over time, consumers are more likely to make a high value purchase.According to a press release from QuadPay, merchants implementing its BNPL service increased their average checkout value by 60%. They also saw a 20% increase in conversions.

Should my business collect Buy Now Pay Later payments?

There are plentiful advantages to offering Buy Now Pay Later as a payment method. It opens the doors to new customers while encouraging them to make higher value purchases. One factor to consider before taking the plunge is how you will integrate BNPL into your existing point-of-sale systems. Bringing the processing in house can be costly and complicated, but there are numerous providers like Klarna, Afterpay, and Clearpay that can handle the processing on your behalf.

GoCardless integrates with BNPL providers like Klarna with its recurring payments solution. Direct debit payments are pulled directly from the customer’s bank account, offering a quick, easy way for customers to make all BNPL installment payments automatically and on time.

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GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.