The Buy Now Pay Later program is becoming an alternative payment facility for merchants and has gained popularity across the globe. This payment option is not new in the market but flourished fully during the global healthcare crisis that hit the world at the end of 2019.
1) How Does Buy Now Pay Later Credit for Merchants Work?
Payment systems have been rapidly changing in recent years. A greater emphasis is given to the importance of a user-friendly, personalised and end-to-end automated transaction system to ensure an enhanced customer experience. Consequently, many companies are adopting the Buy Now Pay Later (BNPL) model for transactions with other firms. As a result, there has been a noticeable increase in firms offering pay later credit for merchants.
These point-of-sale instalment loans are lucrative for customers as a short-term financing solution for their liquidity issues. Merchants offering BNPL have witnessed significant benefits, with their average conversion rate increasing by 20-30%.
In a BNPL facility, fintech companies work as a financial intermediary between the merchants and the business buyers in a B2B transaction. This scheme is especially helpful for small businesses, as restrained cash flow prevents them from buying raw materials and other paraphernalia necessary to keep their business afloat.
Companies like KredX pay the upfront expenses of these items to the merchants on behalf of the customers. As a result, merchants get to increase their sales revenue, while their business buyers get immediate access to credit. These customers will later need to repay the amount via instalments to the financier over a stipulated period.
So, in this transaction model, the merchant payments are completed immediately after making a sale. This supply chain-based financing solution is attractive to buyers for its time-efficient, EMI-oriented and lenient regulatory framework. As a higher number of customers will be inclined toward business dealings with merchants providing BNPL, merchants can grow their revenue exponentially.
The scope of merchant pay later goes beyond revenue-oriented profit-making stratagem. By integrating the BNPL facility into the checkout menu, a business can increase its current sales while building a loyal customer base. The frictionless purchasing experience and flexible transactional approach tempt customers to make repeat purchases. This allows sellers to grow sustainably.
There are several ways that merchants can benefit by offering the Buy Now Pay Later facility, such as:
A crucial reason why small businesses find it challenging to access traditional credit is that they lack the necessary assets for collateral. This is why institutional lenders often deem SMEs as high-risk borrowers.
When a merchant makes a business deal with these buyers, there can always be a risk of a payment default. BNPL providers use state-of-the-art machine learning technology to assess traditional credit data, open banking, and alternative credit data to thoroughly assess a borrower's credit criteria.
The risk management and fraud protection facilities of pay later credit for merchants can safeguard the best interests of a business’s customers. The BNPL providers use curated data to ensure the creditworthiness of customers using the Buy Now Pay Later option. The credit limit is decided accordingly.
Financiers inspect customers’ authenticity using IP profiling, device tracking or monitoring their purchasing behaviour. BNPL providers also use Artificial Intelligence to establish steady communication between sellers and buyers to curb fraudulent behaviour.
According to various market analysts, offering BNPL can save consumer brands from losing $4 trillion. Poor checkout experience remains the primary cause of point-of-sale dropout by the customers.
By offering the Buy Now Pay Later option in the checkout menu, one can cut down this cart abandonment rate by as much as 35%. As this business model provides a solution to obstacles like the lack of suitable payment procedures or expensive products, it increases the chance of closing the deal successfully.
BNPL scheme's impact on a company's revenue growth has been noticeable. According to the available data, there is a 30-50% increase in average ticket size for businesses using this transaction method.
Pay later credit for merchants is also helpful in saving sellers extra spending costs like the merchant discount rate. This is a fee that merchants have to pay as a processing charge for accepting credit and debit cards. Every business that sets up a service accepting these cards must agree to this 1%-3% discount rate.
However, the leading BNPL providers of the industry allow the provision for merchants to save up to 2% of this discount rate. Moreover, they can also utilise this amount to take further measures to attract new customers.
The flexible repayment window of the BNPL option ensures that a business can gain the trust of its customer base in the long run. As a result, these customers will continue to return as the seller can cater to all their needs.
In other words, the time span of a purchaser remaining the company's client gets significantly prolonged. So, the seller can expect to bring in an increased amount of income from a regular client.
Consequently, BNPL has emerged as a constant staple of the business-to-customer and business-to-business transactions. With leading fintech organisations like KredX operating Pay Later credit for merchants, B2B sellers offer this credit facility to their clients to boost their revenue.
Prominent BNPL providers offer their services to the buyers of B2B marketplaces, franchise brand stores, dealers and retailers of B2C brands etc.
With the Buy Now Pay Later programme, business buyers can avail instant purchasing options. Moreover, they can avoid the hassles of the waiting period associated with credit cards.
The entire procedure is completely digital, ensuring a seamless and transparent working mechanism.
A notable benefit of pay later credit for merchants is that it takes a business less than a day in most cases to get quick API integration.