Buy now, pay later (BNPL) lets customers shop without having to pay when they buy. It works with the help of Pay Later providers, who sometimes perform a soft credit check (or not!) and then finance the shopper in the form of a small, interest-free loan.
Offering customers more diverse payment options is generally a good thing, as it can make them more likely to check out, although not so many that it leads to choice paralysis. This is especially true of purchasing options that need no deposit upfront. BNPL is one of the payment methods growing in popularity in Australia, going from 3% of all eCommerce payments in 2018 to 8% in 2019, according to the Global Payments Report 2020 by Worldpay from FIS.
But should merchants offer Buy now, pay later? These are the important points to consider when making the decision...
Most BNPL services work by making the brand pay up to 30 Australian cents on each product that their customers buy, plus a small percentage of the product price, between 2% and 6%.
The main BNPL providers in Australia can be added to eCommerce stores built on Magento, BigCommerce, Shopify Plus and Salesforce Commerce Cloud eCommerce platforms, among others. To activate any of these Buy now, pay later services, download the app from your eCommerce platform’s App store.
Alternatively, you can visit the BNPL service’s own website directly, or contact an eCommerce digital service provider for help.
Integrate it onto the payment page of your eCommerce site, and also make sure it’s clearly noted on the product detail page that this is a possibility for the customer to select when checking out. You can even inform shoppers of this new change in your retail offering with ads and marketing campaigns.
Remember that Buy today, pay later purchasing options are just one part of a broader Point of Sale (POS) system, and it’s important to join up all parts of your POS system to offer a successful Omnichannel retail strategy.
The most popular companies that do Buy now, pay later in Australia include Afterpay, Klarna, Zip Pay and Sezzle.
To use Buy now, pay later services, customers will need to download the provider’s app on their mobile phone and have a registered account with them. Different Buy now, pay later companies have different conditions, and the best one will depend on the needs of each shopper and each store. Here are some of the differences between each of the main ones:
Afterpay doesn’t do a credit check on applicants, and instead has their own internal credit scoring system. This means anyone can be accepted to use Afterpay, even those with a bad credit score, but users will have to start with small amounts to build up trust. Afterpay loans are interest-free, with customers only paying fees if their payments are overdue.
As standard, Afterpay offers customers to repay in 4 instalments over 6 weeks. Payments with Afterpay are made every 2 weeks, with the first one due at the time the customer places the order. The first payment may be higher than the other 3.
For the retailer, it costs 30 Australian cents plus 4-6% commission for every purchase to use Afterpay. The vendor receives 100% of the product price, minus these 30 cents and 4% or 6% commission, around 48 hours after the transaction is made and not after 6 weeks.
Afterpay is compatible with many eCommerce platforms, like Magento, BigCommerce, Shopify Plus and Salesforce CC. It is also possible to use the Afterpay app for in-store purchases.
Klarna runs a soft credit check but doesn’t require any minimum credit score at all. Klarna has a zero-interest payment plan.
In general, Klarna offers customers to repay in 4 instalments over 6 weeks, although this deadline can be extended by up to 2 weeks under special circumstances. Payments with Klarna are made every 2 weeks, with the first one due at the time the customer places the order.
For the retailer, it costs around 2.2% commission for every purchase to use Klarna. The vendor receives the full product price, minus this 2.2% commission, almost as soon as the transaction is made and not after 6 weeks.
Klarna is compatible with many eCommerce platforms, like Magento, BigCommerce, Shopify Plus and Salesforce CC. It is not yet possible to use the Klarna app for in-store purchases in Australia, but it is available in other countries.
Zip Pay runs a soft credit check to see if shoppers are eligible to use its service. Zip doesn’t charge customers any interest on their loans.
Zip Pay works a bit differently from Afterpay and Klarna. Instead of a set number of instalments over a specific number of months, Zip users repay 40AUD per month on the last day of each month until the product price is paid off, or less if the total price is under 40AUD. Zip also charges users 6AUD per month to keep their account open, but this fee is waived if all the payments are met on time.
For the retailer, it costs around 4% commission and possibly between 15 and 30 Australian cents plus 10% GST for every purchase to use Zip Pay. The pricing plans for merchants to offer Zip are all customised depending on the interest-free plans you offer your customers, so there is no flat rate charge for every vendor. The vendor receives the full product price, minus this 4% commission, within 24 hours of the transaction being made and not after the buyer completes their payment plan.
Zip Money is a separate Zip product for purchases over 1000AUD that works differently from Zip Pay.
Zip Pay is compatible with many eCommerce platforms, like Magento, BigCommerce, Shopify Plus and Salesforce CC. It is also possible to use the Zip app for in-store purchases.
Sezzle runs a soft credit check to see if shoppers are eligible to use its service. Sezzle loans are interest-free, with customers only paying fees if their payments are overdue.
Normally, Sezzle requires customers to repay in 4 equal instalments over 6 weeks. Payments with Sezzle are made every 2 weeks, with the first one due at the time the customer places the order.
For the retailer, it costs around 6% of the purchase price and an additional fee of 30 Australian cents to use Sezzle, but the exact amount depends on the type of products you sell, how long your store has been in business and other risk factors. The vendor receives 100% of the product price, minus these costs, within 3 business days of the transaction being made and not after 6 weeks.
Sezzle is compatible with many eCommerce platforms, like Magento, BigCommerce, Shopify Plus and Salesforce CC. It is not yet possible to use Sezzle for in-store purchases.
Buy now, pay later is a type of loan, albeit one that often comes with zero-interest and little to no credit check. It is a type of deferred loan because repayment, interest fees (where applicable), late fees and other extra charges are often delayed for a while, giving the borrower more time and flexibility to pay back the loan.
While the soft credit check that some Buy now, pay later services perform won’t affect the customer’s overall credit score, shoppers should know the implications of using it.
If the customer is unable to make their repayments on time, they are subject to additional fees and charges. This could hurt their credit score and their ability to secure loans in the future. There are some worries that Buy now, pay later encourages people to buy items they can’t afford, thereby getting them into debt.
On the other hand, Buy now, pay later can actually help people to improve their credit scores when used responsibly. By taking out small, regular loans on several products and repaying them on time, they can show lenders that they are reliable, sensible borrowers that they can give a loan to with little risk.
As a merchant, it’s important to be open and honest with your customers about the pros and cons of all the services your eCommerce store offers, including Buy now, pay later. That’s the best way to build brand trust.
Yes, definitely. If you’ve done a study of your sector and found that Buy now, pay later would work or is in demand, or your competitors are already offering it, you should integrate this payment option into your online store.
One Australian Shop now, pay later provider, Payright, estimates that 63% of people are interested in using Buy now, pay later (although they would say that, wouldn’t they?). In any case, it’s almost certain to benefit an eCommerce store, especially those serving customers directly (D2C). There is some expectation that it will also go on to become a viable purchasing method for business-to-business (B2B) transactions, too, going from strength to strength in the future.
For help implementing Buy now, pay later for your eCommerce store, talk to our friendly Australia team.