Those who follow the retail market will be aware of the ever increasing number of Buy Now Pay Later apps. These are services which allow consumers to spread payment for goods over three payment periods. While they have attracted controversy and praise in similar measures, what is the impact on retailers?
RFI Global report into Buy Now Pay Later services
The RFI Global report into Buy Now Pay Later (BNPL) services is even more positive than many enthusiasts would have expected. Some of the headline figures are listed below:-
- More than 60% of retailers saw an improvement in new to business customers
- Over half, 52% experienced an increase in revenues
- An impressive 37% reported growth in profits
- A higher than expected 59% saw an improvement in new customer acquisitions
- Interestingly, 43% said customers were making more frequent purchases
On the downside, due to a lack of awareness it seems that many businesses are rejecting BNPL schemes:-
• 20% of UK retailers are concerned about exposing their business to credit risk
• 63% have no interest in Buy Now Pay Later apps, suggesting there is a “lack of relevance”
It is fair to say that the huge growth of the BNPL sector is to a certain extent reflected in the feedback in the RFI Global report.
How do Buy Now Pay Later schemes work?
While companies such as Klarna have taken the Buy Now Pay Later app sector to a whole different level, it is important to address some common misunderstandings.
Is the retailer at risk of non-payment?
The central attraction for many retailers, aside from the obvious uplift in sales, is the fact that they receive payment immediately with no risk. The BNPL app services take on the financial risk of non-payment by the customer. While fraudulent activity is a whole different subject, where the Buy Now Pay Later purchase is above board, there is no financial risk to retailers.
Is there a charge for Buy Now Pay Later app services?
The typical business model in the UK involves the retailer paying the Buy Now Pay Later app provider between 2% and 8% of the cost of goods purchased. There’s also a less popular model, where the retailer pays no fees but the consumer pays interest on the outstanding balance. As you might have gathered, there is no interest charged on the merchant payment business model which is obviously another attraction for consumers.
Do Buy Now Pay Later companies carry out credit checks?
This is one of the more controversial areas of the Buy Now Pay Later industry, the lack of hard credit checks. Many Buy Now Pay Later providers will carry out a soft credit check by at the moment there is no industrywide communication with credit rating companies. This is likely to change in the short to medium-term as governments around the world look to regulate this area of business, currently showing huge growth.
The upside of BNPL apps appear to outweigh the downsides
While there are currently obvious issues with regards to BNPL apps, there’s no doubt that the positives far outweigh the negatives. Businesses have seen a huge increase in revenue and consumers tap into an interest free short-term loan. One of the main risks is overspending on the side of consumers but this is not something which can be regulated. Consumers also need to take control of their finances.
