Buy Now, Pay Later (BNPL) allows customers to buy something online, but pay for it after delivery. A BNPL payment can be made in installments over a period of time or as a full payment at a fixed date. Thus, the payment method is a novel variant of purchase on account, for short-term financing of goods.
No traditional banking institutions have to be involved when paying in BNPL installments. What’s more, some BNPL companies even refrain from charging interest rates – a practice that banks still adhere to.
With the economic downturn threatening the margins of online fashion retailers, Buy Now, Pay Later can be a tool to keep customers happy in spending.
In this article, we will have a look at the how and why. We will cover…
- Why the fashion industry is under pressure and how BNPL can help
- What the core advantages of Buy Now, Pay Later are
- What options you have when trying to get a Buy Now, Pay Later solution for your platform
Fashion Retailers Need to Embrace Buy Now, Pay Later
Buy Now, Pay Later has grown in popularity since its introduction.
In recent years, the payment method has found its way into many service platforms. BNPL providers such as Klarna, Paypal, and, more recently, Apple are looking forward to optimistic growth forecasts. Such services are also popular with customers and merchants. According to Statista, global BNPL transactions will increase by around US$ 450 billion between 2021 and 2026. That is especially true with younger customer demographics: Gen Z and Millennials are key target groups for BNPL. Overall, BNPL has become one of the fastest-growing segments in consumer finance.
BNPL Helps Retailers Mitigate Plummeting Buying Interest
It’s not hard to see why customers flock to the BNPL payment option: Private households are facing increased financial pressure. While online businesses made good profits during the pandemic, the dynamic changed in 2022. Inflation, international conflicts and delivery shortages are driving up the costs of living.
As a result, customers are becoming more selective in their purchases: they pay more attention to the quantity, necessity, price and quality of their purchasing decisions. Retailers need to make sure they remain at the top of the game in all these categories. For fashion retailers, this is particularly challenging, as apparel ranks high on the list of items customers would cut back on.
50% of UK consumers say they want to reduce buying clothing.(Source: Marketing Week, 2022)
Counteracting this sentiment presents retailers with enormous challenges. They want to give customers the opportunity to buy even in times of economic downturn. Buy Now, Pay Later has presented fashion retailers with a fruitful opportunity to offer customers flexible payment terms. Offering this payment method merchants may improve their standing with customers, especially with low- to mid-income customers and younger demographics.
The Pros of BNPL Systems
In BNPL, customers appreciate:
- The financial flexibility to get clothes right when they need them and pay the bill later, ideally in installments
- The opportunity to examine a purchase thoroughly, allowing them to return it before the payment would be due
- The easier onboarding and fewer restrictions when compared to bank loans or credit cards
Merchants who offer BNPL benefit from:
- Fewer shopping cart abandonments due to reduced friction (lesser bank involvement, easier access to a payment option)
- Better conversion rates as customers buy on first contact – instead of bookmarking and forgetting about the product
- Broader customer base / more revenue as even higher-priced offers become more affordable for more people
38% of customers expect credit cards to step back behind BNPL in the future.(Source: Bankrate, 2023)
The Cons of BNPL Systems
Of course, BNPL systems aren’t a silver bullet for every payment issue. Many finance industry professionals criticized BNPL, questioning its principles and stating:
- Merchants may be targeted with fraudulent transactions, if the BNPL provider neglects efficient anti-risk and anti-fraud measures, allowing customers to order goods they never pay for
- BNPL may encourage customers to spend money they don’t have, which can lead to liabilities exceeding the assets and low creditworthiness
- Some BNPL providers even encourage customers to overspend, as they make most of their money through dunning charges
Now, the question is: Could you build a solution that avoids the flaws above?
Sure, but there are a few things to keep in mind while doing so.
How to Get a High-Performance BNPL System
When looking for a Buy Now, Pay Later solution, make sure that it closely matches your business model. And that it leaves room for adjustments. Basically, you have two options here:
- Integrating a turnkey BNPL solution: This would tie your business to a specific 3rd party provider. It is a speedier approach and requires less domain knowledge and development effort. Yet it generates dependencies that limit your options for innovation or expansion to new markets.
- Building your own BNPL solution as part of a custom payment system: This would allow you to enact full control over the financial technology on your platform. Yet, raising everything from the ground up binds time, money, and workforce. Thus, the easiest way to create a custom BNPL solution would be to rely on a payment system framework with pre-built modules for common features.
As a fashion retailer, choosing the optimal option will be crucial. Turnkey solutions help minimize the impact of a temporary decrease in buying interest. Self-built solutions pay off in the long run, however, when your business is back on an expansion course.
Get Your Ideal Payment System with BNPL Support
To learn more about how you can set up a payment system with BNPL support (or even build your own BNPL solution) check out our feature-rich software framework CoreWallet.
- Support for various types of transactions, right out of the box, such as purchases, top-ups, fundings, withdrawals, refunds and invoices.
- Easy integrations for various product-specific payment providers and methods like credit card, instant bank payment or BNPL.
- Context-based payment routing, selecting the best option for processing a payment automatically.