4 min

Buy Now Pay Later (BNPL): the innovation of eCommerce

January 20, 2022
Buy Now Pay Later (BNPL): the innovation of eCommerce
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The acronym stands for Buy Now Pay Later, and is one of the most popular trends in business-to-consumer (B2C) payments. Many Millennials and Gen-Zs are forgoing traditional credit card payments and their associated high interest rates in favor of interest-free installment payments.

It can be found on major eCommerce platforms such as Amazon and Zalando, but in the last couple of years, services that allow this way of shopping for customers have popped up like mushrooms. The main differences compared to a traditional financing are two, the simplicity of activation, and the absence of charges to the buyer. In most cases we are talking about limited amounts and short repayment periods, normally three months, but there are solutions with longer periods.

BNPL: how it works

The operation of Buy Now Pay Later is simple: we are talking about a short-term financing that allows customers to buy products paying them in installments in the following months at zero interest.In most cases the instalments are 3, the first at the time of the order and the other two after 30 and 60 days respectively.

The forerunner company was the Swedish Klarna, but many similar companies were born in a short time as Scalapay or Clearpay. It is they who, at the time of purchase, pay the full amount of the product purchased by the customer, thus also assuming the risks that may arise.

BNPL: advantages and pitfalls - Advantages for the end customer

An important accelerating factor in the spread of Buy Now Pay Later is certainly linked to the dizzying increase in online purchases that was recorded during the pandemic, especially in the first phase.

In fact, the customer in a period of instability, chooses and prefers to pay in installments their purchases (sometimes even a few tens of euro), in this way the user does not have to deal with payments of higher amount in a single tranche.

An important advantage for the consumer is the immediacy of access to deferred payment, and the total absence of interest (if the customer respects the timing of payments). These factors have a direct impact on the customer's ability to purchase, which leads to purchases with higher average receipts.

Advantages for the merchant

The Buy Now Pay Later, has concrete advantages for the Merchantfirst of all receives the total collection of the sale, to which as all other payment systems is applied a service fee (almost always variable) managed by the service provider.In addition, the seller  guaranteed payment even in the event of insolvency on the part of the end customer.

Disadvantages of BNPL

More than disadvantages we are talking about pitfalls, in fact, the BNPL can favor a type of impulsive and unreasoned purchase of superfluous goods, with the risk of accumulating debts and inducing people to spend more than they can really afford.In addition, difficulties may arise in case of return of the purchased product, in fact in this case you will have to deal with two different parties: the seller and the company that manages the Buy Now Pay Later service.

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