Before now, customers purchasing items on credit from a store had two options; the first is the layaway program which allows the store to reserve the item for the customer while the payment is being made in installments, after which the customer receives the merchandise upon completing the payment. The second option is to place the item on a credit card.
While the latter is still in place, with 79% of shoppers having at least one credit wallet, the former is going into extinction. Rather, they are being replaced by a new and more flexible payment option: Buy Now, Pay Later (BNPL), which is operated by third-party credit experts.
And although the purchase model does not involve an interest rate (rather, the BNPL vendors charge the retailers a fee), retailers make up for this by having more sales. Besides, BNPL has helped neutralize the credit market as it continues to enjoy massive popularity amongst those who are unable to use their credit cards to purchase items for several reasons.
Buy Now, Pay Later, as the name suggests, allows customers to instantly purchase an item and pay later, usually over several equal installments. The model divides the purchase into several equal payments, with the first payment typically made at the checkout point. The remaining payment is then billed to the customer’s credit or debit card until full payment is made. And although BNPL does not affect your credit card score, defaulting or late payment can destroy your credit card score as it will be reported to the credit card bureau.
While BNPL has existed for years, the model experienced a surge in popularity during the covid-19 pandemic as more shoppers shifted to online shopping. Today, several eCommerce sites offer BNPL.
Although not all Buy Now, Pay Later programs function the same way, as some companies have their terms and conditions, most point-of-sale installment loans (which BNPL is an example of) function in the following pattern:
There are many advantages of BNPL, including the following:
BNPL is not without its downsides, and they include the following:
BNPL has come to stay. According to research from Ecommpay, a bank acquirer and global payment service provider, 25% of consumers used BNPL in 2022 than in 2021, while 27% of shoppers already use the payment option. Given this surge, eCommerce businesses must consider ways to offer this service to their customers. This way, there are increased sales activities, accessibility, and brand acceptability.
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