Buy now, pay later (BNPL), also known as point-of-sale (POS) lending or POS financing, is not a recent e-commerce payment choice trend, but it is increasingly expanding. Younger customers, such as Millenials and Gen Z, are particularly fond of it. What is the reason for this? It is because of the financial woes caused by COVID-19, consumers are searching for flexible financing alternatives, especially interest-free options.
Market lending nowadays extends beyond installment loans and conventional credit card services, through promotional interest rates and traditional credit card providers. Fintech solutions have versatile payment choices, such as buy now pay later, which are appealing at the point-of-sale on a company website. Consumers’ transition from traditional brick-and-mortar retail to online shopping has reflected this evolution.
Why Is BNPL The Next Big Thing in Consumer Lending?
According to Citizens Financial Group, 76 percent of customers would be more likely to make a retail transaction if a quick and convenient payment plan was available at the point of sale. The choice to buy now pay later has been more popular in e-commerce over the last few years, and it is no longer a “nice-to-have” for customers, but rather an expectation.
When looking at BNPL from the eyes of a borrower, it’s easy to see that these lending solutions are already competing with credit cards and other means of payment. Consumers do not open credit lines in order to obtain credit; they do so in order to purchase goods. If a customer must choose between using a new credit card to pay for an expensive item in full or getting the item right away with a payment package, the latter aligns more closely with the “work” the customer needs to complete, which is to purchase the item. Consumers get immediate satisfaction with BNPL.
Three Obstacles to BNPL Implementation
BNPL, like any other technology or service, faces difficulties in terms of policy, implementation, and development.
There isn’t much space for mistakes. Offering point-of-sale lending ensures that the bank’s name can be kept to the same expectations as the consumer goods brand you’re assisting in financing. “We knew going in with Apple that there was no margin for error in the customer experience… we wanted to build an immediate, Apple-like experience across all channels,” Citizens Bank’s Head of Consumer Banking said in an interview with American Banker. It can be challenging, however satisfying, to meet the expectations of CX leaders like Apple or Amazon.
Taking care of the merchant integration. The lowest barrier to entry into BNPL is partnering with existing POS lenders or white-label technology suppliers to originate loans, but this reduces the future payout. According to the McKinsey Digital Commerce Benchmark, POS lending conversion rates varies depending on the level of inclusion in the experience, with full scale integration through the consumer path contributing to 2-3x conversion rates relative to modest integration only at checkout. Long-term sustainability requires strong relationships with retailers and merchants, as well as the ability to collaborate across many e-commerce channels.
Creating a one-of-a-kind approach to increase consumer satisfaction and LTV. Unlike conventional loans, prospects who were consumers through BNPL funding did not seek out a financial services company on their own; rather, they sought out a supplier or merchant who happened to be working with a financial services provider. This sort of customer would need proper marketing segmentation and they will not be involved in the services you provide. Based on their shopping preferences, these consumers are more likely to fall under behavioral segmentation.
Custom BNPL Platforms vs. White-Label BNPL Platforms
Traditional lenders’ BNPL deployments have varied from white-label collaborations with established systems to the development and deployment of custom platforms. Banks will use a white-label portal to easily make BNPL available to diversify their loan portfolios.
A personalized framework architecture, on the other hand, pays off in the long run. Citizens Bank’s collaboration with Apple for their iPhone update financing program shook up the telecommunications industry while also allowing Citizens to expand its reach across the country. Increased market popularity, sales, data on customer tastes, and prospects for new alliances are only a few of the advantages.
Tips to Execute BNPL The Right Away
Gaps in the supply chain should be identified.
Seeing the best product growth prospects means identifying differences between how everything is now and how a customer may expect it to be in the future. The Citizens-Apple alliance shook up the mobile market by giving customers a safer way to update their phones right away. Consumers are no longer bound to a two-year iPhone deal for the same handset. Similar gaps exist in the consumer market, especially in the travel, banking, retail, and non-profit sectors, as well as in the B2B industry.
According to 99 Firms, around $4.6 trillion of products is left in online shopping carts each year. Will this number be reduced if BNPL options are expanded? User-centered research will help you identify holes in your consumers’ needs.
Seek opportunities for collaboration.
The foundation of successful BNPL is a full-scale collaboration with the merchant and retail partners. According to an article, US lending at point of sale: The next frontier of expansion, about 75% of customers who fund big transactions do so early in the consumer journey. This is long before payment is made, so a lender’s financing offering must be compatible with the merchant’s merchandise offering on both physical and digital platforms. These alliances can only succeed if they really are mutually advantageous — and if each brand’s value propositions are well-aligned.
If the consumer requires both a commodity and a payment option, the lender and merchant should have a satisfactory experience. Create a back-end platform integration that is exclusive to you.
Act as if you’re a merchant.
With at least 49% of US customers starting their product hunt on Amazon, it’s fair to assume that most vendors are kept to a high level for customer service, which means the POS lender would live up to those expectations. According to 99 Firms, 26% of online shoppers leave orders because the checkout process is too lengthy or difficult, and another 34% because they must build an account to complete the transaction.
Using too many extra measures to obtain a lending alternative would just bring complexity to the process and lower conversion. With UX/UI architecture, you can build a frictionless customer buying path.
Segmentation will help you increase the LTV of your customers.
The ability of the lender to create trust of new buyers gained at the point of sale is improved by full-scale integration between the retailer and the lender. Building LTV across digital platforms necessitates successful behavioral and psychographic segmentation, particularly when new consumers may be more loyal to the merchant than to the lender. Deploy data-driven, targeted marketing strategies to increase brand loyalty.
If you don’t accept buy now pay later options for your online store, you’ll find yourself at a market disadvantage. All three brands have made remarkable gains by leveraging buy now pay later options, putting themselves apart from the market, and building a loyal fanbase by catering to their customers’ wishes and needs.