Buy Now Pay Later: Is It a Boon or Bane In Online Shopping?
The way we shop has changed drastically in the last few years, and online shopping has become the norm. With the convenience of online shopping, retailers have come up with various payment options to attract more customers, and one such option is ‘Buy Now Pay Later‘ (BNPL). Although it is a popular option (especially for millennials and Gen Zers who prefer flexible payment methods), it may also attract criticism sometimes. This blog highlights the pros and cons of BNPL and determine whether it is worth the hype.
How BNPL Works, and Why is it Appealing to Retailers and Customers?
BNPL, or Buy Now Pay Later, allows customers to make purchases with little or no money and spread their payments out over several weeks or months, making it easier for them to afford big purchases. Retailers have also taken notice of its appeal, with many offering it as a payment option to attract new customers and increase sales. For example, major retailers like Walmart and Target now offer their own BNPL services. In fact, a Forbes report found that retailers using BNPL services experienced an average increase of 41% in order value and a 30% increase in conversion rates.
On the other hand, according to McKinsey, above 60% of consumers use BNPL currently, so they are more likely to make larger purchases frequently. However, it’s important to carefully consider the potential risks, such as high-interest fees, the temptation to overspend, debt accumulation, and more. From the reports above, it is obvious that BNPL offers a convenient payment option, however, consumers need to be aware of the potential risks and use it responsibly without getting into impulsive buying.
Who Should Use BNPL?
Although BNPL is widely spread all over the world, younger generations like the Millennials and Gen Zers are particularly attracted to them, as they may tend to have financial constraints in the short term. Moreover, it is also ideal for people who are looking to make expensive purchases but don’t want to pay for them all at once. For instance, students who are in need of textbooks, furniture, and electronics as their study requirements can use BNPL services to spread out the cost over several months. Similarly, small business owners who need to purchase equipment, tools, or supplies can also benefit from BNPL services.
One of the things that is critical to keep in mind, however is to use BNPL responsibly and ensure that you have the means to clear the payments on time, or it could also lead to unwanted debt and financial problems later. This is why we have also discussed some of the cons later in this article for you to understand every aspect of BNPL before using its service.
Pros of BNPL in Online Shopping
BNPL is an accessible payment method that allows customers, especially those who may not have access to credit cards to make purchases. This may especially include students or minors who may not earn enough to pay for bugger purchases all at once. Also, it may be useful for people who are new to credit cards or have a poor credit history. BNPL companies often don’t require a credit check, making it easier for people to get approved for availing their services.
2. No Interest
Many BNPL companies offer interest-free payment plans, which means customers can spread the cost of their purchases without paying extra for the privilege. This makes it an attractive option for people who want to make purchases but can’t afford to pay for them upfront.
3. Boosts Sales
BNPL has been a boon for retailers as it has boosted sales. Retailers have seen an increase in conversion rates as customers are more likely to make a purchase if they have the option to pay later. This has been particularly useful for retailers during the pandemic, as more people have turned to eCommerce stores. BigCommerce being one of them has partnered with several Buy Now Pay Later (BNPL) providers, that includes Klarna, which is a payment gateway (that benefits customers with its BNPL services), by integrating BNPL options into their checkout process. This tends users to be loyal to the brand from which they receive such flexible payment methods. And in return, the retailers enjoy its sales benefits.
We know what you must be thinking. If making online purchases has become so ingrained in our lives, may be it’s time to take your homegrown business online that gives your customers the flexibility to use BNPL services, if they need. While there are other platforms out there for that big start, Bigcommerce could be a smart choice. For personalization, you can also hire Bigcommerce Web Designers from award-winning agencies like CodeClouds, based out of Indiana, that provides custom solutions at affordable costs to power up your brand, and help you expand your scale.
Cons of BNPL in Online Shopping
1. High-Interest Fees
While some BNPL companies offer interest-free payment plans, others charge high fees for their services. These fees can add up quickly, particularly if customers miss a payment or fail to pay on time. This can lead to customers being in debt traps and struggling to make ends meet.
2. Temptation to Overspend
BNPL may encourage you to overspend or buy things you can’t afford because you’re not paying upfront. It’s easy to get caught up in the excitement of getting something right away and forget about future payments. For example, if you buy an air conditioner as a need for the current month but also buy other electronics which may or may not be necessary for that month, it may add up amounts and be a burden for you to repay in the future, even if it’s spread out throughout the year. This might also restrict you from purchasing more later when you may be very much in need of it, which is basically leading you to a cycle of debt accumulation.
3. Impact on Credit Score
While some BNPL companies don’t require a credit check, others do. This means customers who miss payments or fail to pay on time can negatively impact their credit score. This can make it harder for customers to access credit in the future, which can have long-term consequences.
The Ending Note
In conclusion, it can be said that BNPL can be a boon or bane in online shopping, depending on how it is used. While it offers customers flexibility and convenience, it can also lead to debt and overspending if not used responsibly. It is important for customers to weigh the pros and cons of BNPL and use it only when necessary and within their means.
As with any payment option, it is important to read the terms and conditions carefully before signing up for BNPL. Customers should also make sure that they can afford the payments and have a plan in place to pay them back on time. Therefore, it is important to have a plan A and B before deciding to use BNPL and to make sure it is the right choice for your financial situation. With responsible use, this payment option can be great for customers to manage their finances and enjoy the benefits of online shopping.