Making money is important to every business owner but then not all payment options are created equal. Putting a big purchase on a credit card might seem convenient, but your customers are warier than ever about how to pay off their shopping expenses without incurring unexpected costs.
A strategy that benefits your business and your customers are offering multiple payment options, like monthly payments or “BNPL” – BNPL. By offering a “BNPL” option at checkout is more than just a nice-to-have—it’s becoming an essential, expected part of the shopping journey. This is doubly true for your growing Millennial customer base.
With BNPL on the rise, you’re probably wondering whether it’s something you should offer in your online store. Here are reasons to start offering BNPL on your ecommerce site.
Better customer experience.
76% of U.S. consumers are more likely to make a retail purchase if offered a payment plan backed by a simple and seamless point of sale experience. Consumers today expect clear and simple ways to pay, whether they’re in-store or online—and buy now, pay later options are a viable alternative to traditional methods.
While it’s absolutely true that Millennials love shopping, browsing, and uncomplicated delivery, they also demand and expect a superb shopping experience they want to use over and over again.
If you want to get Millennials and keep them as customers, the first thing you need to do is build a platform that is up to the task. That has to be right before you even start thinking about reward programs, loyalty schemes, or any of the other ‘nice to have.’
PayPal found that average order values for retailers increased by 15% once they started to offer financing, and Bread has seen AOV increase by more than 30% with buy now, pay later.
Whether it’s the shock of such a big chunk of change leaving your bank account, or the prospect of high-interest rates on your credit card, it can be difficult to pull the trigger on the purchase of a big-ticket item. That, in part, is why BNPL is having a positive impact on conversion rates.
The Baymard Institute found that the second most commonly cited reason for abandoned carts was the price. Offering installment options can reduce sticker shock significantly, encouraging shoppers to complete their purchase. According to Scott Galloway’s data, it can even increase average basket sizes by 20–30%.
Improves customer loyalty.
The ability to try before you buy has long been a problem for online retailers: people like to feel the fabric between their fingers and see if the shoes fit before they commit. Buy now, pay later specialists like Afterpay offer a great chance to make this work in the online space.
Imagine a young lady looking for something to wear to an upcoming party. Instead of seeing an outfit, buying it, rejecting it, and then having to send it back to get a refund, BNPL allows her to order as many as she likes, safe in the knowledge she doesn’t have to pay for anything she doesn’t like. Even the returns are free. This increases average order value, and means online retailers are fighting on a level playing field with the changing room providers on the high street.
It’s easy to see offering free returns as a cost sink, but they are becoming an essential business tool. According to a UPS study, 66% of customers say they check return policies before making a purchase. And, as mentioned earlier, more than half of online shoppers will steer clear of stores with a strict returns policy.
Businesses that see returns as a chance to build better relationships with their customers and, ultimately, sell more stuff, are better placed to succeed.
Higher customer lifetime value
BNPL is ultimately a win for consumers in that it gives them more flexibility and more control of what and how they buy. Merchants attract new Millennial and Gen Z customers, get more repeat visits, and convert higher average basket sizes.
Since a positive purchase experience is so important to customer retention, these positive experiences mean they’ll come back again and again. In addition, once they know you offer a BNPL option, they’ll come back to you for their next big-ticket item instead of working to find another store they trust that offers it.
Buyers appreciate choices
Even if customers choose your lump sum option (or choose not to buy at all), they’ll appreciate having choices. Offering payment options communicates that you want to make it as easy as possible for them to make purchases. You’re trying to meet them where they are.
Neil Patel reports that 56% of customersexpect a variety of payment options on a checkout page. So over half of your customers want the ability to pay in installments — and in times of economic difficulty, even more, people will be looking for these options.
The goodwill you’ll generate with these options, and from non-buyers, can only be a good thing for your business and can lead to positive word-of-mouth recommendations, better reviews, and higher customer loyalty.
Lower overhead and admin costs
There’s one primary argument against offering monthly payments, and it’s a big one. Offering monthly payments invites several frustrating administrative problems, and potentially robs you of revenue if the customer stops making payments before completing them all. Credit cards can expire before all the payments have been made, requiring followup. There can be an increase in product returns, which cuts into your revenue while increasing your time spent on each purchase.
But here’s the great news: Once a shopper buys through Afterpay’s gateway, you’re paid for the full while Afterpay services the loan and takes on the risk, from chargebacks to fraud. The customer experience is very simple and quick, which often leads to repeat transactions.
Is it the End of the Credit Card Era?
Credit cards have long been a favorite source for easy-access, unsecured credit. But what we’re seeing in Australia is that excessive demands for upfront personal information before credit approval, short interest-free periods, and extremely high rates are proving to be a turnoff for younger consumers.
In just one month, between August and September 2019, the number of active credit cards in Australia fell by 4.1%. The total number of active cards is now at the lowest it’s been in nearly a decade.
Millennials are now all bonafide adults — and Gen Z isn’t far behind them, as some of their older members are coming into their own purchasing power. Both of these generations are known for their desire for flexibility. And having seen the last great recession, it’s no wonder they’re wary of the promises of traditional credit.
Enter buy now, pay later options to disrupt the payments industry, stealing customers away from major credit card companies, and enabling them to spread big purchase payments over time — without the uncomfortable interest fee accrual.
Whether this trend will continue once Millennials attain even stronger purchasing power remains to be seen, but at least for now, buy now, pay later options are benefiting both retailers and consumers — it’s a win-win.