How Buy Now, Pay Later (BNPL) Can Boost Your Online Store Profits

In the rapidly evolving eCommerce landscape, outpacing competitors takes more than just an attractive website and a solid product offering. The modern shopper demands convenience, flexibility and an effortless shopping experience. And that's where Buy Now, Pay Later (BNPL) solutions come into play.

If you're an online store owner, you've likely heard the buzz around BNPL. It's transforming the way consumers shop, allowing them to pay in installments while merchants continue to boost their sales. But you might be wondering, is it worth it for your business? Will it really increase your profits despite the higher fees? In this blog, we’ll explore how BNPL can be a game-changer for your eCommerce business.

Let’s dive into everything you need to know about BNPL, from how it works and its impact on profits, to how it helps you attract more customers and increase conversions. By the end of this article, you’ll be able to make an informed decision about adding BNPL to your online store.

Source - alliedmarketresearch

What is Buy Now, Pay Later (BNPL) and Why Is It Gaining Popularity?

Buy Now, Pay Later (BNPL) is a payment method that enables customers to buy products and pay for them over time without accruing interest. It’s becoming increasingly popular, especially among younger consumers, who prefer flexible payment options over traditional credit cards. BNPL allows customers to divide their payments into manageable installments over weeks or months, making it more affordable for them to make larger purchases.

Why is BNPL gaining so much traction?

• Flexibility for Customers: Shoppers can buy what they need now and spread payments over time. This flexibility can be a significant motivator for purchases.

• Rising Popularity among Younger Consumers: Millennials and Gen Z shoppers are leaning towards BNPL as an alternative to credit cards.

• Low-Cost Financing: Many BNPL services offer interest-free payments if the installments are paid on time, making it a more affordable option for shoppers compared to traditional credit cards.

A recent study reveals that 45% of U.S. online shoppers have used BNPL services at least once, and this figure continues to rise. Merchants who integrate BNPL into their stores are capitalizing on this shift in consumer behavior.

Also Read: eCommerce Payment Trends You Can’t Ignore

Source - mdpi

How Does BNPL Work for eCommerce Merchants?

Now, let’s break down how BNPL works from a merchant’s perspective.

When you offer BNPL on your e-commerce site, you're essentially partnering with a BNPL provider (like Affirm, Afterpay, or Klarna) to give your customers the option to choose a flexible payment plan at checkout. The process is simple:

• Customer Selects BNPL at Checkout: When customers make a purchase, they can choose BNPL as their payment option.

• Approval and Payment: The BNPL provider typically approves the payment in seconds, and the customer is then charged in installments over a few weeks or months.

• Merchants Get Paid Immediately: As a merchant, you receive the full payment upfront, minus the BNPL provider’s transaction fee (usually between 2-8%).

• Customer Pays Over Time: The customer pays back the BNPL provider in installments, often with zero interest if they pay on time.

The key benefit for you as a merchant is that you get paid immediately, while your customer gets the flexibility to pay over time.

How BNPL Impacts eCommerce Profits

Now that we understand how BNPL works, let’s dive into its impact on eCommerce profits.

BNPL offers a significant advantage when it comes to increasing sales. Research has shown that consumers tend to spend more when they have the option to use BNPL. This is because the ability to break up payments lowers the perceived financial burden, allowing customers to purchase more items.

Let’s break this down with a real-world example:

Real-World Example:

Imagine your online store generates $100,000 in sales per month. Without BNPL, you pay around 3% in credit card fees, which equals $3,000. After paying the fees, your net revenue is $97,000.

Now, let’s say you add BNPL to your checkout process, and as a result, your revenue increases by 20% to $120,000. However, 30% of your customers choose to pay via BNPL. The BNPL provider charges 6% fees on BNPL transactions, which equals $2,160 on the $36,000 in BNPL sales. The remaining 70% of sales are still paid by credit card, which costs $2,520 in transaction fees.

Now let’s compare the numbers:

• Revenue: $120,000

• Total Fees (Credit Card + BNPL): $2,520 (Credit Card) + $2,160 (BNPL) = $4,680

• Net Revenue After Fees: $115,320

So, even though you paid higher fees on BNPL transactions, your net revenue increased by $18,320 ($115,320 - $97,000).

To sum up, although BNPL fees may be higher, the boost in sales typically justifies the expense. This makes BNPL a smart investment for many e-commerce businesses.

Source – Practical Ecommerce

Read also: 9 Hacks to Boost Your e-Store with an Online Store Builder

The Cost of BNPL: Is It Worth the Investment?

Retailers frequently question if the higher transaction fees for BNPL are justified by the increase in sales. Let’s break it down:

• BNPL Fees: While the BNPL provider charges 2% to 8% per transaction, this is still lower than the cost of customer acquisition or the cost of running promotional campaigns to boost sales.

• Increased Sales: The trade-off is clear: higher fees but a boost in gross revenue. As we saw in the example above, a 20% increase in sales far outweighs the fees incurred.

• Customer Loyalty: BNPL options also lead to higher customer retention rates, as customers are more likely to return to a store that offers flexible payment plans.

BNPL may cost more per transaction, but it can significantly increase your profit margins, especially as consumer demand for flexible payment options grows.

How BNPL Helps You Reach More Customers

Offering BNPL opens your store to new customer segments that may not have considered buying otherwise.

• Young Shoppers: Millennials and Gen Z shoppers are more likely to opt for BNPL since they may not have access to credit cards or prefer flexible payment options.

• Higher Conversion Rates: Many studies have shown that e-commerce sites offering BNPL see a significant increase in conversion rates. Customers are more likely to finalize their purchases when they can spread payments over time.

• Increased Average Order Value (AOV): BNPL encourages customers to purchase more, knowing they can break the total cost into manageable payments. As a result, your AOV increases, boosting your revenue.

Source – Fit Small Business

How to Integrate BNPL into Your eCommerce Business

Integrating BNPL into your eCommerce store is easier than ever. Here's how to get started:

• Pick a BNPL Provider: That best suits your business objectives. Popular providers in the U.S. include Affirm, Afterpay, and Klarna.

• Integrate with Your E-Commerce Platform: Use Diginyze, eCommerce platform which offer pre-built integrations for BNPL providers.

• Customize Your Payment Options: Work with the BNPL provider to customize how and where BNPL will be offered in your checkout process.

• Start Marketing BNPL: Let your customers know that BNPL is available. Feature it prominently on your homepage, product pages, and checkout process.

Bonus Tip: Use Diginyze for your e-commerce or online store, integration with BNPL providers is seamless, and you can easily leverage Diginyze’s AI-powered eCommerce features to optimize your store for higher sales and profits.

The Future of BNPL in eCommerce

BNPL is not just a passing trend. It’s a long-term shift in how consumers shop and pay. As more consumers opt for flexible payment methods, BNPL is set to become a mainstream feature in e-commerce.

In fact, recent reports show that BNPL adoption in the U.S. is projected to grow by 50% in the next five years. Merchants who offer BNPL today will likely gain a competitive advantage in the coming years.

Conclusion

BNPL is transforming the eCommerce landscape by giving consumers the flexibility they desire, while simultaneously driving increased sales for merchants. Despite the higher fees, the increase in revenue and customer loyalty makes BNPL a smart addition to any online store.

Whether you’re an established retailer or a new eCommerce business, offering BNPL can help you boost profits, increase conversion rates, and attract a broader customer base.

Are you prepared to elevate your eCommerce business? Start integrating BNPL today and see how it can help you grow your revenue. Contact Diginyze to learn how we can help you seamlessly implement BNPL and other AI-driven eCommerce solutions to take your online store and business to new heights!

Book a FREE demo now!