The Covid 19 pandemic accelerated the pace of digital adoption due to an increase in online shopping. The global lockdowns imposed to minimize external movement were a key element in increasing eCommerce adoption and enhancing digital purchasing behavior by customers.
Leading retail companies around the world have witnessed a monumental increase in market capitalization due to the significant increase in eCommerce sales. The growth of the eCommerce sector has led to innovative policies by eCommerce companies to encourage consumer spending and simplify the purchasing journey.
A key aspect of this innovation has emerged in the form of “Buy Now Pay Later” (BNPL) payment solutions that allow customers to make delayed payments on their own terms. The trend has witnessed major popularity during the pandemic due to the surge in unemployment and uncertain financial conditions.
Before delving deeper into the benefits and applicability of Buy Now Pay Later solutions, let’s explore the nature of these solutions and how they function.
What Are BNPL Solutions?
BNPL solutions allow customers to spread out their purchase cost into multiple interest-free payments. These payment options allow customers to divide their purchase costs into smaller payments and pay at their own convenience.
These solutions have embedded benefits for both customers and merchants because of the convenience offered on both ends. BNPL payments options have gained traction amongst customers because of their cash flow management benefits.
Customers – Customers get to have the convenience of spreading out their payments over multiple installments spread out over flexible time periods. Unlike conventional installment-based payment methods, BNPL payment methods allow customers to divide payments without interest and additional fees. The sign-up and checkout process is also streamlined to minimize friction and enable one-click payments for recurring customers.
Merchants – For merchants, offering BNPL payments can pave the way to improved conversions rates and basket amounts as offering convenient payments can enhance customer engagement and increase the rate of repeat purchases. Partnering with established payment companies like Klarna can also provide merchants with the safety of payment handling without conceding high fees.
According to a recent report by Worldpay, BNPL became the fastest-growing eCommerce payment method in 2020.
The rapid adoption of the payment options is driven by recurring customer payments and the popularity of the payment option with younger consumers. Throughout the global market, the payment option is outperforming credit cards as customers shift away from high-interest rates.
Recent studies into consumer behavior point towards the majority of BNPL consumers being between 19 and 34 years of age. A significant percentage of the adopters are customers that have one credit card or less. For such consumers, payment options like Klarna offer a viable alternative.
Exploring Klarna Based BNPL Payments
Klarna has rapidly established its reputation as a leading player in the BNPL industry by offering consumers the ability to defer payments by 30 days. The company has been a pioneer in interest-free financing for consumers across different market segments. For merchants, the payment service offers the prospect of improved customer engagement and higher basket sizes.
The platform has been rapidly expanding with recent outlooks pointing towards up to 11 million active users in the United States. The platform has also been growing at an aggressive rate with extraordinary quarterly growth. The company’s growth has been backed by millennial trends and pandemic conditions exerting increased financial pressure on digital consumers.
Offering Klarna payments allows merchants to attract a wider customer audience and enhance customer trust due to the established reputation of the company. The deferred payment structure also serves as an effective marketing strategy across social media and other marketing channels.
Benefits of Buy Now Pay Later Payments
Thanks to the convenience offered by Buy Now Pay Later payments, customers are increasingly embracing the payment model to make digital purchases. Once the initial customer verification is established, BNPL payments can be performed on a single-click basis to provide convenient payment options to customers.
Here are some of the biggest advantages of BNPL payments for customers.
Simplified Sign-Up Process
Unlike conventional banking products like credit cards, BNPL payment providers do not require extensive financial verifications. The simplified sign-up process makes it easier for younger consumers to apply and proceed with payments. The payment simplification is further supplemented with the widespread applicability of BNPL payments on leading eCommerce platforms around the world.
Enhanced Financial Convenience
Thanks to the deferred nature of payments, customers can avoid bearing the upfront costs of products with BNPL payments. The nature of payments can allow customers to invest finances in better investments and minimize the upfront cost affiliated with product purchases. This financial convenience is leading to increased transaction volume for merchants as well. The convenient payment structure can help younger consumers decrease debt pressure and shift away from compounding payments.
With an expansive payment spread, companies are able to accurately forecast revenue and streamline payment streams over a longer basis. The projected revenue scale is further supplemented with improved economics that allows companies to offer better deals to customers based on the collected data. The value proposition of BNPL payments also makes them ideal for customer acquisition and expansion.
When brands offer simpler payment options, customers are much more likely to try newer products and engage with marketing efforts by the brand. The implementation of BNPL options also enhances transaction speed and encourages customers to make faster purchase decisions. However, it is essential for brands to maintain product quality to prevent a subsequent increase in product returns and exchanges.
Improved Brand Trust
Offering convenient payment options can have a significant positive impact on brand value by enhancing consumer trust. Offering trusted payment services like Klarna could positively impact merchant reputation and help improve customer traction due to the associated brand trust.
Agile Product Model
Unlike the interest rate associated with credit card payments, Buy Now Pay Later models are designed to provide convenient payment options to customers over longer durations. The interest-free nature of the payments allows customers to make bigger purchases and feel comfortable with larger transactional volumes. The disruptive nature of the BNPL model is paving the way for improved customer engagement in existing financial conditions where consumers are looking to minimize frontloaded expenses.
According to a recent study, credit cards charge up to 29% interest rate on outstanding balances to customers. This aggressive interest rate is a key reason behind the adoption of BNPL payment methods, where customers are able to spread out payments without having to pay additional fees.
Why Shift to Klarna Based Payments
For merchants, BNPL payments offer the opportunity to expand into newer customer segments. With the financial challenges exposed due to the Covid 19 pandemic, customers are increasingly looking towards digital payment options as a way to make purchases. Across regions like Europe, where there are localized payment applications, having a name-brand payment provider like Klarna offers brands the opportunity to offer unified payment and decrease the barriers to entry.
Currently, the payment platform has been successfully launched across 21 countries with a growing customer base in Europe, North America, and Oceania. The service provider is leading the way in consumer downloads in the BNPL payment category. Offering Klarna-based payments allows brands to offer a diversified payment option for local consumers.
Studies point to card abandonment being a key concern for online merchants. BNPL payments decrease cart abandonment by offering simpler payment options to customers and enhancing conversion rates. A study by SimilarWeb pointed to a 50% decrease in cart abandonment on websites that offered BNPL payments. This trend points towards the potential benefits of offering simplified product financing for merchants.
Major Developments in the Buy Now Payer Later Space
The Buy Now Pay Later segment has been rapidly developing as major stakeholders start to explore the benefits of offering convenient payment options to consumers.
Here are some of the biggest developments that indicate a positive landscape for the growth of BNPL in different segments.
- Apple recently announced a partnership with Affirm to offer customers long-term financing options. The collaboration is centered around 12- and 24-month financing options for Apple products. Affirm has also established partnerships with other leading market players, including Walmart and Shopify, to provide consumers with affordable upfront purchasing options. The financing options offered by the platform offer convenient payment options to customers ranging from six weeks to three years.
- Companies like Adidas and Peloton offer interest-free payment plans for their products across digital payments. Even though interest rates are largely variable depending on the partner payment vendor, the convenience is paving the way to seamless eCommerce purchases across the fashion industry.
- Square has also expanded into the BNPL segment through its Afterpay company to offer customers wider financing options for products.
- In the edu-tech sector, companies like Novae are offering BNPL-based financial education courses to improve entrepreneurship and encourage learning for consumers.
BNPL solutions offer an effective way for consumers to spread out the cost of their desired items over convenient periods. However, it is also important to consider the potential of overspending driven by impulsive purchases. It is essential to supplement these solutions with effective budgeting and cost-awareness to ensure timely loan payment and the prevention of applicable interest for consumers. With responsible deployment, the tool can be a great way to enhance eCommerce experiences for customers by offering them more freedom over their purchasing options. For merchants entering newer markets, offering BNPL payments offers the prospects of enhancing customer acquisition and improving brand awareness as well. By going with a proven service provider like Klarna, merchants can simplify customer decision-making by offering a trusted payment option.
The popularity of BNPL solutions is paving the way for bigger players in the eCommerce market to offer personalized payment options to consumers. The win-win proposition offered by these solutions is encouraging credit card companies, retailers, and other stakeholders in the fintech industry to embrace bite-sized payments and expand the convenience payment setup. If leading retailers and financial companies shift towards offering BNPL options to consumers, bite-sized payments will be poised to become a leading trend in the future.
Oceanpayment is helping brands adapt to the changing requirements of the eCommerce sector by offering cutting-edge solutions to streamline transactions. We’re helping leading merchants implement modern payment options for their consumer base with embedded support for localized payments. Our commitment towards innovation has made us the leading choice for eCommerce companies that are looking for streamlined payment solutions.
To learn more about our solutions and how we’re helping companies implement cutting-edge payment solutions, check out more at https://www.oceanpayment.com/.