Customers, especially millennials, love Buy Now Pay Later. The service syncs with how they want to live, delivering immediate gratification with money management. In a lightly regulated market, some of the customers who have problems repaying tend to use multiple BNPL providers.
There is no doubt that this new form of shopping is helping customers to budget and plan their expenses. The ease of use and sense of helpful shopping opportunities has resonated massively. There also seems to be a growing base using it to help them out of financial issues around cashflows and budgets. However, like with any credit product, there are also reports of groups that struggle to keep up with the instalments and then seemingly engage multiple BNPL tools to help them, only compounding their budgeting situation.
In an unregulated environment, it seems likely that regulations will change in some way or form as volumes increase, especially as banks begin to enter the market.
BNPL has been a boon also for the card networks and their bank issuers too, for them, the BNPL trend has taken one transaction and turned it into five, the initial purchase and then 4 more instalments. What’s not to like?
For retailers, however, the devil is in the detail. The promise of greater sales, and having to keep up with the Jones’ is very real in certain segments, however as we all know that also comes with the higher cost of acceptance. And in an unregulated market, this is outside of the standard DR / CR fees.
With the banks now entering the BNPL market, we could also start to see a movement away from debit costs to credit as instalment payments are made straight out of bank accounts. This could see an uplift in overall fees, although not at the rates of the unregulated payments, but still further hitting merchants’ bottom line.
The second watch out for retailers is who owns the customer relationship. Afterpay and Zip are great examples of approaching the market as brands as much as a service. For their growing millennial and gen Z fan base, Afterpay and other BNPL “brands” aren’t just payment platforms, but virtual doorways to hundreds of retail brands. This places the BNPL provider between the retailer and their customer, and in a strong renegotiating position with any retailer, as they own the customer relationship more than the retailer themselves.
So what should retailers do?
Well, more providers should bring more competition and keep fees competitive. For certain segments, not having a BNPL method isn’t an option, as today’s customers expect to pay how they want and will actively seek out the brands that let them.
The right BNPL choice is the one that gives you a return, one that doesn’t simply swap an existing sale for a BNPL sale with higher merchant fees and lower margins. That means understanding the uplift and returns, monitoring it over time, balancing the overheads and underlying costs, and how they mesh with your supporting channels and demographics. If you can do that, you can make BNPL work for you now and later.
Wpay is a retail payments platform that delivers seamless payments with real-time spend visibility across all payment methods online and offline.