Pros and Cons of “Buy Now, Pay Later” for Online Businesses

In the ideal world, when a customer purchases a product, the shop or business receives the payment right away. But with so much competition in the market, along with economic downturns affecting the purchasing power of consumers, businesses needed to come up with creative ideas to retain or increase their sales. One of the most popular schemes is the “buy now, pay later”.

This deal sounds attractive to consumers. Through this payment option, they can purchase products while they wait for their next payday.

But how about online shops?

How does the “buy now, pay later” affect online shops? What are its benefits and advantages? If you’re an online shop considering this strategy, keep reading.

What is Buy Now, Pay Later?

“Buy now, pay later” agreement is a type of point of sale financing that allows customers to purchase goods on credit, usually on an installment basis.

The payment will not be included in their latest credit card billing statement. Depending on the terms of the merchant, it will reflect on the next or succeeding statements.

While some high-street shops offer this payment option, it is more common among online retailers. Additionally, it is often targeted toward families and younger people.

Aside from banks, “buy now, pay later” packages are also offered by third-party providers. They provide consumers interest-free loans in the condition that they pay it within a certain timeframe. Once the grace period is up, if there is a remaining loan amount, consumers will have to pay the interest.

Pros of Point of Sale Financing for Online Business

Higher conversion rate

There’s nothing more frustrating than seeing customers spending lots of time on your site, browsing products, adding them to their cars, yet walking out of your online shop in the end.

While there are many reasons why customers abandon their online shopping carts, some people do because of financial issues.

Point of sale financing allows customers to purchase their desired goods and products even during a tight financial situation. It also allows them to take advantage of sales and promotional discounts currently offered by your online shop.

Wider audience

By splitting up purchases over 3, 4, 6, or more months, online shops can make big purchases a lot more affordable. By doing so, they can reach a wider audience, including younger people.

Affordable, flexible payments for high-value products

For online shops offering high-value products such as jewelry and electronic devices, “shop now, pay later” can also have a great impact on order conversion.

By enabling customers to pay in increments, BNPL schemes, merchants have an easier way of selling their products to the market.

Higher average order value

The Average Order Value (AOV) is the average amount a customer pays when they make a purchase. Many online shops have experienced as high as 130% increase in AOV after implementing the “buy now, pay later” financing system.

The reason? Smaller, spread-out payments increase a customer’s purchasing power. In another research that studied U.S. consumers, it was found that most people use BNPL to avoid credit card interests or purchase products that would otherwise fit their budget.

Improved customer experience

A positive customer experience equates to more sales.

Consumers are happier when they are given more control over their purchasing decisions. Providing flexible payment systems and financing options is one way to empower your customers.

Cons of Point of Sale Financing for Online Business

But just like other forms of financing options, the “buy now, pay later” scheme comes with drawbacks too. Below are some of them:

Higher merchant fees

Banks and credit providers that offer BNPL services place charges on both the customer and the merchant. But compared to traditional payment methods, BNPL systems incur higher fees, usually ranging from 2-6% of the amount purchased.

Integration challenges

Integrating the “buy now, pay later” mode of payment in your shop’s normal checkout process flow involves some workaround. It requires specialized tools and technology, which can often add up to the expense incurred by the merchant.

Financing experts recommend going with a third-party BNPL as they offer lower costs compared to traditional banks.

Accreditation challenges

In addition to integration challenges, the “shop now, pay later” may not be for everyone. Businesses have to meet certain criteria to qualify for this payment method. Also, certain businesses, such as tobacco and gaming companies, are not eligible for this financing option.

Confusing deals from different providers

“Buy now, pay later” services differ among providers. And since it’s a relatively new system, choosing the best package for your online business can be confusing too.

It’s important to fully understand the terms and conditions of the BNPL provider and compare their rates to choose the best budget-friendly and efficient package for your store.

Also, when issues with your BNLP system arises, you run the risk of damaging your reputation.

BNPL financing encourages consumer debt

While they are marketed as consumer-friendly finance products, another drawback of BNPL is that it often encourages customers to purchase more products than they can afford. This can put consumers in a difficult financial situation, and even hurt their credit scores if they are unable to pay on time.

Final Thoughts

“Buy Now, Pay Later” has become very popular in recent years. As much as it empowers consumers in many ways, BNPL also offers several advantages to merchants, such as:

  • Higher conversion rate.
  • Wider audience.
  • Affordable, flexible payments for high-value products.
  • Higher average order value.
  • Improved customer experience.

Nonetheless, it has some drawbacks too. Among these are:

  • Higher merchant fees.
  • Integration challenges.
  • Accreditation challenges.
  • Confusing deals from different providers.
  • BNPL financing encourages consumer debt.

Choosing the best BNLP package for your business is important to ensure that your online store maximizes the benefits and lessens the risk.

Martha Pearson is a Content Marketing Manager at and has more than 8 years of experience in Fintech and AI. She helps business owners and customers be aware of all the new trends in the field and has her unique approach to every topic based on her experience and knowledge.

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