What merchants need to know about buy now, pay later

Gabriel Bolu | vice president of Product Strategy and New Initiatives, FIS

September 27, 2021

By now most merchants are at least familiar with buy now, pay later (BNPL), an alternative payment method that’s gaining widespread popularity around the world. Though relatively new, BNPL is no longer fringe. Merchants need to assess whether offering the service is right for their businesses.

Worldpay’s 2021 Global Payments Report found that buy now, pay later has grown to account for 2.1% of all global e-commerce transactions in 2020. Led by extraordinary growth in Europe, that figure is expected to double by 2024 when BNPL will account for 4.2% of global e-commerce sales.

Merchants will want to gain a well-rounded understanding of buy now, pay later, including the basics of how BNPL works, integration requirements and how to manage the checkout experience.

Buy now, pay later basics for merchants

Buy now, pay later is form of consumer credit that differs from traditional credit cards in several important ways. Whereas credit cards issue consumers a revolving credit line, BNPL offers consumers a fixed duration installment option. The consumer receives the goods or service immediately, paying for a single transaction over a set amount of time measured in weeks.

The buy now, pay later proposition is simple: BNPL increases sales because many consumers will spend more knowing they can pay in installments. It’s a great alternative for consumers looking for a flexible way to pay without paying credit card interest.

During checkout, the customer is presented with payment options, and upon selecting a BNPL provider, the payment installment options and agreement are presented. Upon completion, the customer is returned to the merchant website to complete the purchase.

Behind the scenes, the transaction is settled as the BNPL provider pays the merchant the full purchase price (minus any fees). The BNPL provider then collects the transaction amount from the customer per the terms of the installment payment agreement.

Using buy now, pay later to enhance the checkout experience

Though growing in popularity, buy now, pay later options are still very new to many consumers. Adding this option to the checkout experience requires clear and concise communication.

Communicating the essence of BNPL to customers is critical. How that takes place is up to the merchant, balancing the desire to educate consumers about BNPL while maintaining a streamlined checkout experience. One effective approach is simply indicating at checkout that a purchase can be made in four installments and showing the price per installment.

Adding buy now, pay later to checkout

There may be some integration work required to enable buy now, pay later at checkout, particularly if the merchant owns the checkout page. From the perspective of merchant checkout design, BNPL is simply another payment method that doesn’t require extraordinary effort. Like any new payment option, some integration work is required to expose this option to consumers, but BNPL integrations are straightforward and technically similar to other popular options like credit cards, debit cards or digital wallets. If a merchant uses a checkout page hosted by payment service provider (i.e., hosted payment page), then there is even less work required by the merchant to enable the BNPL payment option.

Adding popular BNPL options like Klarna, Afterpay, Openpay or Affirm is functionally similar to adding Apple Pay or American Express to the payment mix. Merchants can integrate directly with the BNPL provider, or they can integrate the option through their existing payment service providers. Integrations through existing payment providers typically lessens the integration burden on retailers.

Does buy now, pay later meet the financing needs of my customers?

Buy now, pay later delivers convenience and choice to consumers that crave both. Consumers want to have greater control of their spending while avoiding unmanageable debt. Importantly, they want to do it all more efficiently, wherever and however they shop. BNPL options satisfy consumers across generations and geographies by flexibly catering to their evolving purchasing habits.

For merchants, the equation is simple: does buy now, pay later increase sales? Does BNPL reduce customer friction and improve conversion rates? Is BNPL a cost-effective way to improve customer experiences while bolstering the bottom line? A large and growing number of merchants are answering with a resounding “yes.”

To learn more about adding buy now, pay later to your checkout experience, contact us.