The COVID-19 pandemic and resulting economic shutdown left a large chunk of the workforce unemployed and struggling through significant financial hardships. Even as the economy rebounds, many consumers require flexible financing options to purchase goods. One such option that continues to gain traction is the buy now, pay later (BNPL) lending structure. BNPL lending benefits merchants and consumers alike, and in this article, we will discuss its value in point of sale (POS) transactions.

What is BNPL?

A BNPL product is a form of installment loan. The lender divides the customer’s up-front purchase price into multiple (but typically equal) payments. The first payment is often due at checkout, and the lender then bills the consumer until the good or service is paid in full.

BNPL products are most prevalent in online transactions, though some are available at physical store locations and usually include late fees. The fees are discounted to the merchant at around 6& of the tax value.

How Does BNPL Work?

During check out, the merchant provides the customer with the option to slice the total purchase price and pay in multiple installments over time.

The customer then completes an application during checkout – typically on a computer screen or mobile device. The application will require basic customer information such as:

• Full legal name
• Date of birth
• Mailing address
• Phone number

The customer will then choose one of the available payment methods. The provider will run a single application and approve or deny it in a matter of seconds. They will also require the consumer to enter a form of repayment for the first payment, i.e., a credit/debit card or a checking account.

Different providers offer different payment plans, though a standard structure is the “Pay in 4,” which slices the initial purchase price into four equal installments. Each is typically due two weeks apart, with the first payment due at the time of sale.

Lenders of Pay in 4 products typically do not charge interest because the payback period is relatively short. However, if the customer does not make timely payments, the lender may impose late fees and interest charges.

BNPL Lending Benefits for Merchants

Four BNPL benefits for merchants are as follows:

• Builds customer trust: A BNPL model helps customers financially and enhances their experience with the merchant’s brand. A payment installment agreement is an ongoing engagement rather than a “one and done” transaction. The merchant is developing a relationship with the customer, which can help build trust and encourage them to continue buying that brand.

• Attracts new customers: A BNPL option might attract new customers interested in your goods and services but who do not have the budget to pay up-front. If two competing merchants are vying for the same customer, the one offering a BNPL solution is likely to win that business.

• Generates more business from existing customers: The more options you present to customers, the more chances they have to purchase goods and services. By allowing existing customers to obtain a new line of credit, the merchant facilitates the purchase of multiple products at one time.

• Meets customers at the point of value: BNPL products allow customization, meaning that merchants can tailor solutions to specific customer needs. The lenders can provide customers with the option to get the product or service they want when they want it.

BNPL Lending Benefits for Consumers

Five BNPL benefits for consumers are as follows:

• Enhanced safety and security: BNPL products do not require consumers to swipe a debit or credit card, enter their Personal Identification Number, or provide bank account details. Instead, the system generates a one-time password and sends it to the registered mobile phone number for verification.

• User-friendly: Certain BNPL platforms provide a QR-code option that allows consumers to scan the code to make payments. Other platforms enable consumers to complete transactions via the United Payment Interface (UPI). In either case, the purchasing process is typically quick and simple.

• Flexible payback periods: Customers can purchase items today and pay for them under the terms of a flexible payback agreement, traditionally a Pay in 4.

• No new credit lines: In the case of BNPL transactions, the customer is not opening an entirely new traditional line of credit to purchase an item and pay its full value upfront. Instead, they open an account with a specific merchant to purchase goods or services and pay for those items over time.

• Attracts the next generation of consumers: BNPL products are growing in popularity, particularly among younger consumers who distrust traditional financial institutions but still look to avoid lump sum payments.  

Consumers Crave Flexibility

The consumer payment process is crucial to any company’s bottom line. Providing customers with flexible options can successfully drive new business, help retain existing customers, and boost the overall consumer experience. 

However, choosing the correct payment methods that most appeal to and financially support your customers is even more critical. Right now, money is tight, and merchants find that BNPL lending benefits are currently some of the most sought-after payment features available to customers.