Insight: Buy now, pay later – is it the future of eCommerce?

There’s been an explosion of buy now, pay later eCommerce solutions - encouraging online shoppers to spend more and keep more.

But there’s also a dark side to this form of financing, and it isn’t just consumer debt. Some sellers are attributing BNPL solutions to an increase in eCommerce returns, shipments and costs – but is it the real culprit?

This week, we’re delving into the hype and future of buy now, pay later solutions and the implications for your eCommerce business and supply chain.

What is buy now, pay later (and how does it work)?

Buy now, pay later is a point-of-sale finance solution that allows shoppers to make online purchases but pay for them at a later date. You may have heard it referred to as Pay Later or Shop Now, Pay Later.

The solution integrates into your checkout and appears alongside traditional payment methods, such as debit card and PayPal. Customers opting for BNPL have the option of paying in full at a later date (usually at the end of the return period) or in instalments. A soft credit check is then performed, and the consumer contracts with the BNPL provider, who will usually pay you in full straight away.

The benefits of buy now, pay later finance options

While credit cards and in-store finance have long been around, buy now, pay later companies, such as Klarna, PayPal Credit, Affirm and ClearPay are disrupting the payment industry – proving incredibly popular with millennial shoppers and online sellers alike. Why?

Customer experience

We all know that a seamless customer experience is key to winning and retaining customers, and avoiding cart abandonment and negative feedback. Pay later solutions enhance the customer experience by replicating the “try before you buy” element of in-store shopping and removing the need to wait for payday (or cake day) to make a purchase.

Added value

Pay later options enhance the perceived value of products, leading to a 33% increase in average order value. This is because customers can order a cart-full of products without the financial commitment of liking them – prompting them to order (and hopefully keep) more. Additionally, many delayed payment options are interest-free, making them an attractive alternative to credit cards.

Seasonal shopping

Experts predict delayed payments to hit it off this Christmas, helping customers spread the cost of gifts, treat themselves and spend more than they otherwise would at a financially difficult time of year.

Relevant reading: How to prepare for a COVID Christmas

Increased conversions

Payment methods and additional costs feature in five of the top ten reasons for cart abandonment. Buy now, pay later solutions overcome these root causes of abandonment to prevent it from happening in the first place – leading to more conversions and repeat customers.

Accordingly, point-of-sale finance is a booming industry, with one in five customers already using the service.

The impact of buy now, pay later options on fulfilment

But, as we hinted, there’s a darker side to instant credit. Damaged credit scores, increasing debt and crippling repayment finance are emerging as the long-term consequences of pay later financing. There are also implications for your supply chain and fulfilment operation. Specifically:

Missed payments

If your business relies on fluid cash flow, delayed payments could affect your ability to stock your warehouse and fund free initiatives such as shipping and returns.

Most delayed payment providers conduct a soft credit check and contract with customers directly – making this a non-issue for many. However, it’s prudent to check who ultimate financial responsibility lies with before entering into any arrangements.

Increased shipping

Pay later solutions make it easier and less risky for customers to buy multiple products at once, meaning you’ll likely experience an increase in overall orders and order size. This increase has considerable implications for your fulfilment operation, including:

  • Capacity – can you handle an increase in order volume and package size during peak periods?
  • Cost – can you afford the increased carrier costs, particularly if you offer free shipping?
  • Packaging – can you accommodate larger orders without sending multiple packages?

These are essential considerations for your fulfilment team and may influence discussion on whether you’re ready to use a 3PL.

Increased returns

The incentive for shoppers to order more with the intention of returning more increases with BNPL – after all, why not if you’re not paying for it straight away. Our recent white paper on Reverse logistics: the state of eCommerce returns 2020 covers this topic in more detail, but in short, you must consider:

Processes

Do you have an effective and efficient process for handling, classifying and re-selling returned orders?

Cost

How will you absorb the cost of increased returns and deter customers from returning items without restricting your returns policy?

Fraud

Do you have methods in place to identify, target and reduced eCommerce returns fraud?

The future of buy now, pay later options

Despite the murkier side of buy now, pay later, this eCommerce-FinTech collaboration still has a promising future, and this is largely down to millennials.

Millennials are wary of credit cards for many reasons, including their experience of the 2007-2008 financial crisis and the volume of personal data required during the application. Accordingly, millennials are less likely to own a credit card compared to older generations.

Pay later payment solutions are already catching on in the US and well-established in Australia, where 30% of adults have a BNPL account. And with brands such as GymShark, ASOS, Topshop and Schuh already on board, it’s becoming more common and expected in the UK.

The main question for you is, can your fulfilment department handle it?

About Synergy Retail Support

Synergy Retail Support is an eCommerce fulfilment service that helps businesses grow their fulfilment capacity in line with their online sales. We know online retail inside out, which makes us best placed to analyse the latest eCommerce trends (such as BNPL) and help you to navigate the full fulfilment consequences.

Get in touch to find out more.

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Gary Rees

Gary Rees

Gary Rees is the owner of Synergy Retail Support, one of the leading SME fulfilment centres in the UK. Having successfully grown the business for over 30 years and with relationships with most household brands, he now looks to partner with customers rather than just act as a supplier so that both parties can grow together. Gary has extensive knowledge in retail compliance, production technologies, shipping details and customer service.

Feel free to contact me personally if you’d like to discuss your business.

gary.rees@synergyretailsupport.co.uk
+44 (0)3453 402 980