The advantage of this lending method is also its main disadvantage. If the desired product or service is not available from the BNLP-service's partner stores, you can't use installment payments, just like in the case of high costs. Then the standard credit products of banks - loans and installments - remain without alternative.
An important aspect of BNPL that should be considered in both B2C and B2B is that if you ignore the BNLP-service requirements at all, then the system will refuse to buy in the future. The company may transfer customer data to a third party - for example, collectors. In addition, the service also has the right to collect the debt through the court.
At Penenza we help to grow sales by providing the possibility to offer an installment plan to buyers. They usually face problems with wanting to buy more from suppliers, but not having working capital in order to do so.Pros
This format has a number of clear advantages for customers that use it when making their purchases. Here are some of them:
- The possibility of buying goods in installments with a convenient repayment schedule. Usually at the time of ordering 25% of the cost of the item is paid. The rest of the debt is divided into 4-6 equal installments with a periodicity that occurs once in 14 days. In essence, the client company receives a comfortable payment, not burdening the organization's budget.
- Convenience: BNPL services make it easy for consumers to make purchases without having to pay for them upfront.
- No fees and no penalties. If the payment discipline is strictly adhered to or if the debt is repaid early, no sanctions are imposed on the customer.
- Easy Payments. A debit or credit card is linked to the order. The first and subsequent payments are deducted automatically. The task of the holder is reduced to timely replenishment of the account.
- No encumbrances. The guarantee of a close relative is not required to gain access to the services.
- Budgeting: By allowing consumers to pay for purchases in installments, BNPL services can make it easier for them to budget for expenses.
There are many significant benefits not only for customers, but for businesses as well:
- Increased conversion and sales. According to statistics, the number of orders placed increases by 20-30% on average (according to RBC Capital Markets). At the same time the average check increases: depending on the category of products from 10 to 50%. For example, in the case of "Rue21", the company that specializes in retail sales of clothing, when implementing the service "buy now, pay later" the average purchase increased by 73%, acting as a big advantage for the company.
- Encourage customers to make impulse purchases in installments. With the opportunity to split the cost into several monthly payments, customers actively purchase more expensive items.
- Expanding the customer base. Increasing the number of new clients who are interested in paying in installments, but not on credit terms.
- Forecasting of future business revenues. Positive experience with purchases on interesting terms will allow you to transfer the visitor into the category of a regular customer. Keep in mind: the terms should be fair. It is considered unacceptable to increase the price when choosing a service to pay in installments.
- Security. Customers can enjoy zero risk experience, because suppliers pay 100% of the amount upfront.
- Overall business growth. That includes sales, average check and the number of deals.
- Additional payment method. The BNPL approach in a B2B setting is suitable for both online and offline sales, depending on your business type.
- Bigger deals. Companies that rely on the BNPL method are able to sell more with the same amount of customer’s money.
- Customer loyalty growth. Ongoing installments make it harder for clients to switch to competitors.
- Competitive advantage. BNPL acts as a new technological tool in an intense competitive battle.
- Funnel conversion rate growth. The usage of BNPL comes in handy if your business is looking to increase the % of closed deals.
From the point of view of development prospects, the industry carries a number of important risks. One of them is the transition to state regulation. In essence, the same rules and regulations should apply to this sphere as to microfinance organizations and banks. In fact, operators and retailers gloss over some of the important issues concerning the accrual of interest on breach of contract or options for settling debts. As the number of users of the service increased, the share of overdue payments increased. This trend could lead to stricter conditions on the part of the operator, for example: minimizing risk by introducing commission.
These are some other disadvantages that can be explored in the BNPL industry:
- Fees and interest: Some BNPL services may charge fees or interest on the amount financed, which can increase the overall cost of the purchase.
- Credit risk: Using BNPL services can also be risky for consumers, as it can lead to overspending and an increase in debt.
- Late payment: some services may add late payment charges for those who miss to pay on time.
- Lack of transparency: BNPL services may not be very transparent about all of the costs associated with using their service, which can be difficult for consumers to fully understand the implications of using it.
It's important to keep in mind that while BNPL services can be a convenient way to make purchases, they should be used responsibly. It's best to read through the terms and conditions carefully, and keep an eye on the credit limit, fees, interest rate and the due date to avoid additional charges.
Grand View Research, a research and consulting firm, predicts that the global BNPL services market will grow at a compound annual growth rate of 22.4% during 2021-2028. Allied Market Research, on the other hand, expects the global BNPL services market to reach $4 trillion by 2030, with a compound annual growth rate of 45.7% from 2021 to 2030.