How to help customers harness the power of BNPL

Published on Oct 28, 2022

How to help customers harness the power of BNPL

Offering your customers a buy-now-pay-later (BNPL) solution is a good way to provide a frictionless payment experience. Still, businesses should do more than include a BNPL provider on their checkout portal. Companies should consider their role in explaining how BNPL works and why it might be an alternative payment option worth considering.

Customers may not know how BNPL works if they’re unfamiliar with the technology. Others may not know how BNPL works with their credit or personal finances. An informed customer is an asset, making it essential that business owners help customers understand when and how BNPL might be an appealing payment option. 

What makes BNPL different from other payment methods

BNPL helps customers enjoy a frictionless payment experience. Approval usually comes within minutes and often from the same browser window they have open at checkout. Although BNPL is a form of financing, it usually has fewer or less restrictive approval requirements, which means using BNPL can be faster than getting a credit card.

Customers who use BNPL usually pay the provider upfront, leaving the remaining balance for payment installments. Most BNPL providers do not charge interest so long as your payment installations are on time and for the right amount. This is different from credit cards, which usually come with a monthly interest charge (unless they’re an introductory zero-APR card).

The pros of BNPL: what customers should know

There are several benefits BNPL provides your customers: they can afford large purchases sooner than they might if they had to save up first. BNPL also comes without interest payments, which is unlikely with credit cards. Approval takes seconds and doesn’t require as much information as a credit card application. Plus, BNPL providers only pull soft credit checks, which do not impact the customer’s score.

The cons of BNPL: what customers should know

There are significant downsides to using BNPL that customers must be aware of. The temptation to overspend when using BNPL is high, which can result in unaffordable payments. This is one of the biggest challenges consumers face with BNPL: they make a purchase with recurring payments they cannot afford, resulting in fees or penalties for missed payments. 

BNPL providers did not report to credit bureaus until spring 2022. Now, these businesses can choose to report account openings, payments, and closings. Credit bureaus say that BNPL will not impact credit scores for now and will merely be included in a person’s credit report.

What businesses need to know

As a business owner, BNPL offers several advantages over other payment types. The technology can help remove barriers to checkout by giving customers another way to finance a purchase without using (or even having) a credit card. Installment payments are more palatable for people who do not want to pay high-interest rates, who may not have credit cards, or cannot afford the full balance of a purchase at the point of sale. Plus, you get paid by the provider, meaning they’re responsible for collections.

BNPL gives customers an alternative to credit card payments, and there are several service providers out there from which you can choose as a business owner. These companies charge a fee to the merchant like credit cards do, be it in the form of a monthly product fee, fixed transaction fee, or variable fee.

Implementing BNPL on your website is typically straightforward, especially if you’ve already worked through the steps to incorporate debit and credit card options. Most companies use BNPL for e-commerce, but there are ways to use it in a brick-and-mortar location as well.

Making BNPL work for you

BNPL is a newcomer to the payments space, but the ideas behind it are familiar to many. This low- or no-interest payment method allows customers to make big-ticket purchases while paying off what they borrow later. Businesses get paid up-front when a transaction takes place, and may have to pay one or more fees as part of the payment.

There are pros and cons to BNPL worth knowing about, especially now that providers are reporting to credit card companies. You can make the most of BNPL by embracing what it offers you as a business owner, and by informing your customers on when and why they might want to consider using it.