Over the last few years, “Buy Now Pay Later” or BNPL has become a prominent form of financing globally. BNPL has been seeing constant growth in India, further accelerated by the pandemic. Buy Now Pay Later has emerged as a convenient mode of payment, essentially reducing the financial burden on a borrower by offering no-cost EMIs.
The core premise of BNPL is that it allows customers to pay over an extended period. This credit period ranges from 15 days to 36 months, depending on the size of the transaction and customer profile. Similarly, the amount offered depends on the lender and ranges from Rs 10,000 to Rs 60,000 for a retail borrower.
BNPL enables a one-click checkout process for the customers. For availing BNPL services, a merchant needs to sign-up once with the lender, and then the merchant could use the BNPL solution to increase its overall sales with a flexible credit period for its customers. BNPL usually offers no-cost or low-cost financing along with flexible repayment options. However, the highlight of the BNPL service is a one-click credit facility that a buyer can avail as a short-term credit option for making purchases and paying for them at a later date.
The BNPL model is used for increasing conversions, cart size, customer reach and retaining the existing ones. Some of the advantages of the BNPL model are listed below:
Completely online and fast process – Anyone sitting anywhere and at any time can sign up and avail BNPL. On the other hand, credit cards require weeks to be processed and lots of paperwork. With digital KYC (Know Your Customer), buyers can instantly get their account approved for BNPL and start transacting.
Increased revenue – Sellers that implemented the BNPL model for their business or e-commerce portals saw increased conversion rates and average checkout value. BNPL is an effective way for sellers to increase revenue without resorting to discounting.
Acquiring new customers – A BNPL financing option can help a seller attract new customers who were hesitant earlier to purchase its products because the prices were out of their budget. BNPL model brings in different demographics, including price-conscious customers who might think that the products are priced beyond their reach.
Customer loyalty – Merchants offering BNPL options understand the seamless shopping experience BNPL offers. BNPL can increase customer loyalty, bringing them back for making repeat purchases.
Even with all the advantages and attractive features of the BNPL service, there are some inherent disadvantages of BNPL, as listed below:
Higher merchant fees – Banks and other credit providers offering the BNPL services carry charges on both the customer and the merchant front. Compared to traditional modes of payment, BNPL systems have higher fees, generally ranging from 2% to 6% of the purchased amount.
Integration-related issues – Integrating the BNPL mode of payment in the checkout process involves some workaround for a seller. It requires specialised technology and tools, which could often increase the expenses incurred by a seller.
A seller can use invoice discounting when employing the BNPL mode of payment in its business. When a customer selects the BNPL payment option, the seller can avail upfront cash from a lender once the goods are shipped, or the service is delivered. A seller doesn’t have to wait for its customers to pay, doesn’t have to worry about the hassle of collecting payments from its customers and doesn’t have to worry about bad debts. Buyers, however, would still get their goods or services with just a click and can make payment at a later date.
Businesses that opt for invoice discounting with the BNPL facility and integrate it into their business can resolve various business and operational issues and ensure a strong customer base.
One of the most effective ways invoice discounting enabled BNPL facility accelerates a business is that it allows instant injection of capital for the seller. The seller receives the total value of the sales much earlier than when the customer pays or pays in instalments. It helps sellers use the amount at their discretion: sellers could purchase raw materials, hire new employees, open new branches or accept new orders.