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Small Business Owners: Is It Time to Offer Buy Now, Pay Later?

By: Lending Tree


Woman at checkout in fashion store paying with credit card. Customer using payment terminal machine. Standing at counter. Buying and shopping for clothes. Bank card graphics are made up.

If you own a small business or have spent time online shopping, chances are you’ve heard of the buy now, pay later trend. It’s an approach to shopping — popularized by point-of-sale financing companies such as Affirm, Afterpay and Klarna — that’s become more common due to the COVID-19 crisis forcing consumers to shop online during pandemic-related restrictions and shutdowns.

But does that mean you should offer the option at your small business? Sure, the buy now, pay later (BNPL) system can give your customers access to your products and services; however, high fees will cut into new profits.

Here’s what you need to know before offering a buy now, pay later option for your small business.

What is BNPL?

Between 2019 to 2020, the buy now, pay later (BNPL) trend increased exponentially in popularity. This process works as a small loan to online shoppers. BNPL allows for consumers to opt for a payment plan rather than pay the entire cost of a product upfront. Instead, depending on the company, shoppers will typically pay about a quarter of the total cost when they first make their order, then make the next three payments every two weeks after that.

The trend has become so popular, in fact, that it is projected to exceed $100 billion by 2024 in the U.S. alone.

BNPL is particularly attractive among young shoppers. Within the 18- to 34-year-old age group, 12% answered that they would use BNPL to purchase items during the 2021 holiday season, according to a CNBC/Momentive survey. That’s twice as likely as those in the 35 to 64 age group (6%) and 12 times more likely than those aged 65 and older (0%).

The pros and cons of offering buy now, pay later at checkout

Pros: popularity, increased sales, faster payment

“Buy now, pay later programs can be great options for businesses. Perhaps, most importantly, because consumers love them,” says Matt Schulz, chief credit analyst at LendingTree. “We’ve seen that consumers spend more when financing with these types of loans, and those who’ve used these loans tend to use them over and over again. That’s good news for businesses that offer them.”

Offering a BNPL service can provide access to your goods and services that some consumers might not have otherwise had. Because of their poor credit profiles or level of income, some people aren’t considered eligible by many lenders for credit products, such as credit cards. This can limit their ability to make purchases as they may not be able to afford to pay the full price of a product or service upfront. A BNPL option can make some purchases much more feasible for some consumers.

“As BNPL becomes more common, more and more customers will come to expect to see it offered,” says Schulz. “It’s in businesses’ best interest to make it as easy as possible for customers to pay the way they want to pay, so these loans are almost certain to become more available in the very near future.”

One of the biggest perks to BNPL loans, however, is that the payoff periods are finite. The typical BNPL loan term is paid off six weeks after the initial purchase. With a credit card, that payback period can go on for far longer.

“Few things make business people happier than getting paid more quickly, so it is easy to see why merchants would like buy now, pay later loans,” says Schulz.

Becoming a BNPL merchant can also provide your small business access to more exposure. Some point-of-sale financing companies, like Afterpay and Klarna, include small-business sections on its list of shopping categories where shoppers can go to specifically support small businesses. Affirm, as well as Afterpay, also offers a black-owned businesses section where consumers can shop around at small businesses owned by Black business owners.

Cons: fees, flooded market

While BNPL can offer your business several advantages when it comes to online consumers, it certainly isn’t perfect.

“For one, the fees tend to be higher than the already-high fees charged by credit card issuers,” says Schulz. “That’s a major downside: If your business is operating on tight profit margins, as most are, the last thing you want is to pay even more in fees.”

However, Schulz points out, for many businesses, the increase in the average ticket amount that comes with implementing BNPL is worth the extra cost. That’s a calculation business owners will have to do themselves before diving in, though.

Another challenge small businesses can face when it comes to BNPL is the saturation of lenders in the market.

“It can be difficult to know which one is the best fit for your business,” says Schulz. “Do your homework to know which services are best known, what each lenders’ fees and rates are and other key details before signing up.”

So, is it right for you?

As a business owner, only you’ll need to carefully weigh the costs and benefits of implementing a BNPL option for your customers. As this form of payment plan gains popularity, you may find your customers beginning to expect it when checking out. However, if your business budget is tight, affording the fees associated with lenders may be tough to swing.

Published: December 17, 2021

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Lending Tree

LendingTree is an online loan marketplace for various financial borrowing needs including auto loans, small business loans, personal loans, credit cards, and more. We also offer comparison shopping services for autos and educational programs. Together, these services serve as an ally for consumers who are looking to comparison shop among multiple businesses and professionals who will compete for their business.

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