Interested in adding a buy now, pay later (BNPL) system to your ecommerce business? Today is your lucky day. In this article, we talk about what the buy now, pay later model is, how it works, what its main features are, and what benefits it can bring to your business.

What is buy now, pay later?

Let’s start with the basics. Buy now, pay later (BNPL) is a payment option that allows customers to purchase items without needing to pay the full price up front. With BNPL, customers can pay a fraction of an item’s cost and then pay the rest in weekly or monthly installments without any interest and with no fees unless they miss a payment. Because of its simplicity and attractive payment conditions, BNPL has become one of the most popular payment options. In this article, we talk about how to create apps like Klarna and Afterpay.

Merchants that offer a buy now, pay later option at checkout use a BNPL provider that pays for customers’ purchases up front. Installments paid by customers then go directly to the BNPL service instead of the store. A BNPL service can be implemented in both online and offline stores.

BNPL can be used for low-cost clothing and accessories purchases as well as for more expensive goods and services such as glasses and contact lenses, IVF, plane tickets, and dental work.

Benefits of buy now, pay later

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Now let’s find out what the benefits are for retailers of BNPL services.

Up-front and in-full payments

With BNPL services, retailers get paid up front and in full. Payment providers shoulder the credit risks, so you don’t have to worry about chasing after late payments.

Higher conversion rates

Shoppers tend to buy products if they can afford to take them home right away. Buy now, pay later lets customers do that, and it can increase your conversion rates. Industry data shows that merchants can increase their conversion rates by 20% to 30% with a BNPL service.

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Higher average transaction value

When customers are provided with a buy now, pay later option, they’re more likely to buy more products and spend more money than usual. In addition to seeing a 68% increase in basket size, many merchants who use BNPL also see their transaction values increase by 25%.

Larger customer base

A buy now, pay later service can attract customers who wouldn’t have visited your store otherwise. Today, there are millions of consumers who use BNPL services, and many of them are looking specifically for stores that offer it.

Repeat purchases

Customers tend to make repeat purchases more often with BNPL. Afterpay BNPL shoppers make purchases more than 20 times per year on average.

How to implement BNPL in your store

Here are a few tips on how to implement a buy now, pay later service in your store. But first, you need to find a BNPL service provider.
Here are some key factors you should consider when choosing a BNPL partner:

  1. Point of sale integration. To ensure a smooth checkout process, use a provider that integrates with your existing POS system. This way you’ll be able to reduce the need for manual work and double entry.
  2. Fees. It’s typical for buy now, pay later companies to charge a fee for processing payments. Usually, it’s in the form of a percentage of the purchase price plus a transaction fee. Research the fees of different providers to choose the most suitable solution.
  3. User base. It’s better to choose a trusted payment provider that has a strong user base. A well-known provider will showcase you to more people and attract customers to your store.

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Basic components of buy now, pay later platforms

Buy now, pay later services usually have the same core components:

  • Loan terms. These depend on the provider and the retailer. For inexpensive purchases, loan terms can be a few weeks to six months. For big purchases, customers can pay for two or more years.
  • Purchasing power. The purchasing power usually depends on the provider. BNPL providers offer loans of up to $30,000.
  • Repayment frequency. Consumers pay back credit in weekly or monthly installments, while merchants are usually paid back in up front and in full.
  • Convenience. Everything is done quickly and easily. Customers can apply for loans and get approved in minutes at the point of sale or online.
  • Paperless. Everything from the application process to loan management is done online. With buy now, pay later, customers don’t have to physically print or sign anything.

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How to encourage customers to use buy now, pay later

So what should you do after implementing buy now, pay later functionality? You should start spreading the word to encourage your customers to use this payment option.
Here are a few tips on how to attract customers to your buy now, pay later service.

Announce it

Attract your customers’ attention with an official announcement of your new payment technology. For example, if you have a customer email list, you can send all your customers a message telling them about buy now, pay later and encouraging them to use it in-store.

Another good idea would be to include product mentions to give customers an idea of what they could purchase using BNPL.

Display signs

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Let customers know about your buy now, pay later services by placing informational banners on your site and icons on product pictures.

Get listed in your BNPL provider’s directory

Most buy now, pay later providers have directories listing the retailers that offer their services. This puts your business in front of potential new customers who are looking to take advantage of your BNPL offerings.

Buy now, pay later market overview

Afterpay

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One of the most popular buy now, pay later providers is the Australian Afterpay. To use Afterpay, customers simply choose it as their payment method when making an online purchase. They then have eight weeks to pay the amount back in four installments, with no fees if all payments are made on time.

How does Afterpay work?

Customers can start using Afterpay by signing up and adding an Australian Visa or Mastercard debit or credit card. There are two ways to use Afterpay:

  • Online. Buy things online and select Afterpay during checkout.
  • In-store. While at the checkout in a physical store, use your phone to visit the Afterpay website and enter the cost of your purchase. Then you’ll get a barcode that you simply scan at the cash register.

Two weeks after making a purchase, Afterpay users need to pay back the first 25% of the credit amount. The remaining installments of 25% each need to be paid back every two weeks after that. Customers receive reminders before payments are due to help them avoid missing payments. Purchases over $500 require the first 25% payment to be made right away.

Conditions of shopping with Afterpay

  • No interest. The service works as a no-interest loan.
  • Easy in-store purchases. Customers who don’t have an account can still use Afterpay. They just need to sign up later in order to make payments.
  • Account management. People can see their upcoming payments, orders, and account information.
  • Reminders. To avoid overdrafts, Afterpay sends notifications that remind users about upcoming payment amounts and due dates.
  • Automatic deductions. Afterpay automatically charges each payment from a user’s chosen card. This decreases the number of failed payments.
  • Refunds. With Afterpay, customers can still get refunds according to the store’s refund policy.
  • Pay in advance. Users can pay installments ahead of time.
  • Security. Afterpay is a PCI DSS Level 1 certified service provider.

How does Afterpay make money?

Afterpay’s main revenue comes from charging retailers fees for offering the service. A small percentage of revenue comes from users’ late fees. If for some reason a charge to a user’s card is unsuccessful, Afterpay will notify the user and give them a chance to choose a different payment method. If the payment still isn’t successful, Afterpay will incur a $10 late fee.

If within seven days the user doesn’t pay the installment, they’re charged a further $7.

Zip Pay

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Zip Pay by Zip Co. is similar to the Afterpay interest-free payment service.

How does Zip Pay work?

Once users have signed up for Zip Pay, they can make purchases online (by choosing Zip Pay as their payment method during checkout) or in-store. Users can sign in to their Zip Pay accounts and select Zip Pay as the payment method during checkout.
After making purchases, users can choose their repayment frequency:

  • weekly
  • every two weeks
  • monthly

The minimum loan amount that Zip Pay offers is $350, and the maximum amount is $1,000. The service requires a minimum monthly payment of $40. If payment isn’t made by the end of the month, Zip Pay charges a $6 monthly fee.

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Conditions of shopping with Zip Pay

  • Interest-free repayment. Zip Pay doesn’t charge any fees unless a user missed a payment.
  • Low fees. The late fee is $6, which is a bit lower than Afterpay and lower than nearly any credit card.
  • Credit limits. Zip Pay has three different credit limit options: $350, $500, and $1,000. The company’s algorithm approves each user for one of these limits.
  • Simple sign-up process. Zip Pay lets users sign up via Facebook or PayPal.
  • Automatic deductions. Users can set up direct debit from their bank accounts.

How does Zip Pay make money?

Zip Pay is free to integrate but charges a merchant fee depending on the kind of business and the interest-free period you choose to offer to your customers. The transaction fee is a maximum of 30 cents per sale, and the more customers pay with Zip Pay, the cheaper the per-customer transaction fee is for the merchant. Zip Pay also makes some money off the $6 late fee charged to customers.

Klarna

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Klarna is one of the most famous buy now, pay later platforms. Today, it has over 80 million customers in 17 countries.

How does Klarna work?

Klarna’s goal is to make the shopping process more streamlined.

Klarna lets users pay for purchases in four interest-free installments. It also alerts customers when their favorite retailers offer deals.
When paying with Klarna, customers are charged the first installment when the merchant confirms the order. The following three installments are automatically charged from customers’ accounts every two weeks. If users miss payments, Klarna charges a $3 late fee for orders under $100 and $7 for orders of more than $100.

Сonditions of shopping with Klarna

  • Ghost card. Customers can use Klarna as a payment method at retailers that are not signed up for the service. To do this, they need to use the platform’s virtual Visa card at checkout.
  • Returns. If users want to return their purchases, Klarna will make a full refund.
  • Slack period. If a user misses a payment, they’ll be given a “slack period” of two to seven business days.
  • Low fees. The charges for using Klarna are relatively small.

How does Klarna make money?

As with most buy now, pay later services, Klarna makes most of its revenue by charging fees to merchants. The transaction fee is 30 cents per sale. Some portion of revenue also comes from late fees.

Quick summary of buy now, pay later

We hope this article has shed light on the world of buy now, pay later technology. Here are the key takeaways:

  • To ensure a smooth checkout process, use a BNPL provider that integrates with your existing POS system.
  • Research the fees of different providers to choose the most suitable solution. It’s best to choose a trusted payment provider with a strong user base. A well-known BNPL provider will showcase you to more people and attract customers to your store.
  • Attract your customers’ attention with an official announcement of your new payment option.

If you want to implement a buy now, pay later option for your business or if you have any questions regarding this topic, contact Mobindustry for a free consultation.

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Are you planning to expand your business online? We will translate your ideas into intelligent and powerful ecommerce solutions.

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