One in 10 Australians already used a BNPL purchasing solution in 2018 and it’s proven especially popular among money-conscious Millennials, with 70% claiming it helps them use credit cards less. With these numbers in mind, the BNPL market is predicted to double in size by 2023.

Here’s what you should know if you’re considering tapping into BNPL for your business.

What is ‘buy now, pay later’?

BNPL providers offer consumers to pay for goods and services in manageable, interest-free instalments as opposed to paying the whole amount due at the time of purchase. Categories range from fashion to home supplies, travel and everything in-between.

Two of the most prominent players in the market are Afterpay and Zip Pay, however, there are more options in the Australian market, including Sezzle, Splitit and Openpay. American Express has also launched its own version, Plan It. All feature a similar model whereby customers are granted small amounts of unsecured credit (usually up to $1,000) at no cost, while merchants are charged a small fee to process the transaction.

How can BNPL technology help grow your business?

The feedback from Afterpay’s business partners is positive overall. Some brands have reported an increase in sales, while others have credited the platform with contributing greatly to the growth of their customer base. The business itself has recorded an impressive 20-30% increase in average order value across the board. Some of the reasons might include:

  • Offering a BNPL service allows your business to access the growing cohort of consumers who rely on these providers to complete purchases they might not have made otherwise. To this target group, the lower upfront financial commitment as well as the no-interest, automated payment plan is a big drawcard. So in a highly competitive market, BNPL can enable your business to access a bigger share of the market.
  • A good BNPL system can contribute to a smoother customer experience by removing potential purchase barriers and, therefore, increase customer satisfaction. As a result, it can increase the likelihood of repeat purchases and referrals by happy shoppers.

As subscriber numbers continue to multiply, Afterpay, Zip Pay and others are likely to benefit immensely from the ‘network effect’ – the increase of a service’s value as more people use it. As this growth is predicted to continue, BNPL is likely to become more valuable to businesses as the number of consumers using the technology continues to rise.

What costs will your business incur?

While BNPL companies make money from interest and late fees on the customer side, they also charge a merchant fee. This is the percentage of the transaction that you pay the provider, which is included in the overall price of the goods or service being sold. So, as a business, you should consider whether your profit margin will be able to withstand the additional cost.

The merchant fees for ‘buy now, pay later’ solutions are higher than those of traditional credit providers. Afterpay currently charges merchants 30 cents per transaction while Zip Pay’s merchant fee is “dependent on your business and interest-free period you choose to offer your customers” according to its website.

However, not using a BNPL may come at the expense of losing a potential conversion altogether.

Other challenges you might face

In addition to merchant fees, integrating Afterpay or other BNPL solutions could also mean your business will face additional set-up costs, depending on your existing technology.

Most providers assure potential partners they’re compatible with commonly used e-commerce, POS systems and payment gateways, but it’s worth finding out if your billing platform is included in this list, so you don’t have to splurge on implementing new tools.

Adopting a ‘buy now, pay later’ solution for your business is highly appealing given the prospect of generating more sales and expanding your customer base. The future of the sector looks promising and your business could benefit greatly from the industry’s evolution.

If the benefits outweigh any costs and there are no technological roadblocks, there’s almost no reason why your business shouldn’t embrace BNPL.