In a mystical, faraway kingdom, there was a merchant who sold miraculous goods: a magic closet that freezes food, a self-propelled carriage, a casket that speaks and sings in a human voice. The kingdom’s citizens were amazed by these magical gadgets. Many dreamed of acquiring them, but not many could pay for these seemingly outlandish things.
A FAIRYTALE OFFER
The Buy Now, Pay Later (BNPL) business model has magically made goods and services accessible to more consumers. BNPL services have become a solid trend in payments.
BNPL, like traditional installments, provides the opportunity to split a total order amount into several payments. With BNPL, a provider company, not a bank, pays for the buyer’s purchase at a retailer. The buyer does not sign a loan agreement, does not provide supporting documents, does not pay interest fees and receives the goods immediately. This model increases the average bill and sales in general. Although sellers pay a commission for BNPL services, the benefits for merchants are obvious.
ALL IN ONE PLACE
In a traditional card purchase, a request for a transfer of funds passes from the merchant’s bank to the buyer’s bank through the payment gateway and the card payment system. BNPL implies the presence of a service provider in this chain, which transfers the entire amount to the store at the time of sale. Then the client returns the funds with an installment plan.
BNPL operators earn on commissions from stores, so consumers do not pay additional interest, do not wait for installment approval from the bank, and merchants receive increased conversion rates and loyal customers.
The driving force for the introduction of the BNPL model was the e-commerce boom. Besides traditional online retailers, social media apps like Instagram and TikTok now make it possible to purchase goods directly through their platforms that know users’ behaviors intimately – what, who, where and when they order, what products they buy more often, what events they attend. Advertising is configured to promote products that may be of interest, and the addition of BNPL services makes the purchase even simpler and faster.
As the market develops, BNPL players are beginning to integrate their services into super-app platforms, where even more than in social media, users can discover new products and receive personalized budget planning advice based on purchase history.
REGULATORY QUESTIONS
BNPL is a relatively unregulated payment method. Central banks around the world are currently weighing the risks and analyzing the model’s requirements. At the time of purchase, it is often not required to verify income and go through the installment approval process with the bank, since BNPL is not a credit product. In case of delay in payment, a fine is charged; the fine amount is different for various providers, and the buyer cannot apply for restructuring.
Since BNPL purchases are not a credit product, they do not affect the buyer’s credit score and history. For example, when approving a mortgage loan, the bank cannot estimate the debt load and, accordingly, the solvency of the applicant.
Lawmakers are developing legislation for BNPL services, considering regulations like limiting the size of the penalty for delay, limiting the maximum cost of installments and setting the price of goods depending on the availability of payment installments.
WHAT’S NEXT?
The BNPL industry continues to evolve, with more and more BNPL services emerging from fintech companies, traditional banks and other financial world players. It is important to implement a high-quality BNPL solution and deploy the right strategy for BNPL development.
Be it traditional credit offers or BNPL services and super apps, SOLAR Installments makes magic by creating efficient payment programs. The module easily implements any payment scenario and offers flexible payment schedules and synergistic combinations with loyalty programs.
The development of BNPL models in the B2B segment is at an early stage, but it is gaining momentum. BNPL for B2B can be a useful tool — consider implementations like quickly scaling a business. There are also BNPL solutions for offline purchases: instant issuance of virtual one-time payment cards for payment at the point of sale is offered.
The ability to conveniently and quickly make purchases is key to conversions increase. Traditional payment methods may become less comfortable for both buyers and suppliers in the future. BNPL is transforming online shopping by helping brands reach new consumer segments.
