The Dot Academy

Welcome to the world of ‘Buy now pay later’

Have you also noticed that when completing an online order, we often find alternative payment methods besides the classic bancontact, credit card or visa? Klarna may sound familiar to you? But do you also know Afterpay & Affirm? They are all part of the new world of “buy now & pay later”, also known as BNPL. A phenomenon that we will be seeing more and more in the future. Because admit it: buy something online, try it at home first and pay afterwards. A real dream coming true for every online customer, right? 

What exactly is buy now pay later? 

In comparison to classical online payment methods, via banks or credit card companies, fintech startups such as Klarna no longer ask you to pay for your product in advance. As a consumer, you receive your product immediately after ordering, without spending a single euro. 

It is quite clear that this payment system has many advantages for the consumer: flexibility, the ability to postpone costs or to spread expenditure over a longer period of time, etc. 

So how does this work for retailers?

So as a consumer, this is clearly a very user-friendly payment method. But how does this work out between the retailer and the payment platform? Who pays for what? 

Well, this BNPL payment method leaves the cost, of the consumer paying later, to be borne by the merchant himself. Thus they charge significantly higher fees compared to Visa. The exact cost depends on a variety of factors such as the type of product, the length of the company’s existence and the exact product purchased. 

However, the merchant does not have to wait for the consumer to make his actual payment. It is the payment platform that intervenes in the meantime.

Then what is the point of offering BNPL as a retailer?

Paying a higher fee is not something you do lightly. So, in exchange, there must be some very attractive advantages to make the decision as a retailer to offer a BNPL to your consumers: 

  • First of all, several studies show that consumers tend to shop for a higher amount when a BNPL method can be used.
  • Further, we also see that more consumers convert since one can immediately receive the product without waiting for a transfer.
  • Believe it or not, but BNPL methods also create an influx of new consumers. Often these fintech startups come up with specific client cases that put retailers or brands in the picture. In this way, brands get additional exposure to new consumers which they wouldn’t reach in any other way.
  • As a retailer, using different marketing methods to encourage upselling is one thing. But having the ability to align the consumer’s purchasing power with their purchase attention? That’s a whole other story. You desperately want to buy that one pair of pants, but it’s not financially possible for the moment. Such issues are history thanks to BNPL.

It isn’t always peaches and cream

Every medal also has its downside. That is also the case with BNPL methods. And at the Dot Society, we always like to give the full story. 

So where does the shoe pinch? Well starting with the problem of affordability. It’s pretty obvious, but this system can only last if consumers also make the effective payment. And when this doesn’t happen, there is a risk that you as a consumer will quickly end up with a whole heap of debt, as these fin startups demand sky-high fines for non-payment. Logical, say many specialists since you encourage customers to make purchases, which they may not be able to pay at all. 

In addition, BNPL also does not appear to be the best way to help consumers financially in the long term. In the event of non-payment, your details will end up in a database, which may make it a little more difficult for you to enter into payment plans or loans in the future. 

What will the future bring us?

Well, several reports predict a bright future for these BNPL methods. For example, a report from IBIS World states that this industry will grow at a rate of 9.8% annually for the next five years. In fact, some sources claim that the e-commerce world will completely shift from standard credit cards to this BNPL method. Credit card companies are also spotting this opportunity and are currently experimenting with services within this world. But whether they will be able to remove Klarna and Afterpay from their throne remains to be seen. 

This post is also available in: Dutch