E2E, POS, P2P, DeFi… The list of abbreviations circulating the fintech industry can be confusing, especially for complete n00bs! But BNPL doesn’t have to be one of those cryptic acronyms. Because that’s not just another buzzword to puzzle your brain but one of the most advanced digital solutions that empower merchants and customers alike. So what is the meaning of buy now pay later and how does it work? BNPL or Buy Now, Pay Later is an innovative financing model that allows customers to get a product or service instantly and pay for it over time, which also opens new revenue streams for merchants. So, let’s explore what BNPL is and why it’s one of the most in-demand business models that is expected to grow to $179.5 billion by the end of 2022.
What Is the Definition of BNPL? Let’s Crack the Code!
What does BNPL mean? BNPL or Buy Now, Pay Later, as the name suggests, allows consumers to make a purchase and pay for it later. But let’s give the official definition: BNPL is a short-term financing model for both merchants and customers that allows customers who can’t afford lump sum payments to make larger purchases in installments or deferments.
While online purchases based on BPNL financing are growing in popularity, pay over time tools are not a new concept. Such business models have their roots in the installment financing methods of the past when spreading large purchases over multiple payments, especially relevant for big-ticket items and luxury deals, was further popularized by the introduction of the first credit cards in the mid-20th century. BNPL is an additional payment method that suits credit card users, as well as those who lack access to traditional banking services. The best part is that there are no interest fees or hidden conditions attached!
How Does the BNPL Model Work? [Explained]
Today, BNPL, also known as POS (point-of-sale) installment loans, can be offered in-store and online. The user might be asked for an upfront payment and then agrees to pay off in follow-up installments, without any interest charged on their purchases. Many businesses across the clothing, food, entertainment, health, and travel industries offer Pay in 3 or Pay in 4 plans, which according to data are highly popular among Millennials and Gen Z. In fact, adoption rates are growing, and figures show that 47.4% of Gen Z might be using BNPL by 2025.
For merchants who want to empower customers and stay ahead of the game, traditional BNPL business models offer two options: to build a product from scratch or to use an existing BNPL company. Both options are not ideal as they lead to time-consuming and costly processes or loss of control and flexibility, respectively. And here is where novel fintech platforms come to the rescue! Today’s fintech companies are here to change the traditional financing landscape by introducing customizable solutions.
There are also BNPL banking opportunities. Currently, banks are employing various strategies to tap into the potential of BNPL. Banks can offer personalized offers and customization for purchases, driving loyalty. Contextual and relevant offerings at the point of purchase are key.
with Tarya being one of the pioneers in the sector. By offering a high degree of customization, Tarya allows merchants to integrate BNPL quickly, regain control of user data, improve the customer journey, and increase sales.
To BNPL or Not | How Does BNPL Make Money?
While BNPL as a high-tech financing model can undoubtedly benefit customers, businesses may wonder how this model can increase their revenues. We’re glad you asked!
- Revenue streams and mass production: The increase of novel payment opportunities for customers has led to numerous advantages for businesses. Online BNPL financing is associated with a 25% increase in basket conversion and 35% in average order value, including higher-priced deals and larger sales. Higher purchasing power also leads to mass production, which as a result generates new jobs and novel business opportunities.
- Repeat customers and brand loyalty: By providing users with flexible payment options and excellent user experience, lenders can create a community of repeat users and increase customer loyalty. To be more precise, data show that BNPL solutions lead to an increase of 40% in repeat purchases. By boosting brand equity, businesses can further attract new clients and increase sales.
- Decreased risk and time-to-market: BNPL solutions come with sophisticated AI-driven risk assessment algorithms. For example, Tarya’s BNPL comes with improved risk management and gives businesses full control over financing terms and fees. Not only risks are decreased but time-to-market. Having the unique chance to implement BNPL plans fast and create positive user experiences gives a competitive edge and spikes in sales.
- Data control and user insights: Last but not least, businesses can benefit from offering BNPL as a source of valuable user insights. Information is the most valuable commodity, after all. By knowing what people shop, need and want, businesses can improve their services, offer attractive solutions and nurture positive customer relationships.
BNPL In a Nutshell
BNPL or Buy Now, Pay Later is a convenient financing model that can benefit customers and businesses alike. Who says that the “I want it now” mentality is wrong?! Quite the opposite! It meets the needs of today’s tech-savvy customers who want to make a purchase immediately and gives businesses a competitive edge by employing fintech innovations. In fact, the benefits BNPL brings go beyond shopping and the retail industry. BNPL enhances the travel, education, health and beauty industries, so BNPL is not only about satisfying a craving immediately but about investing in yourself and resolving urgent matters now that will pay off in the future.
And among today’s cutting-edge technologies, Tarya’s prominent solution goes a step further by providing a novel BNPL model, which allows merchants to become lenders and boost sales, regain control over data and increase brand loyalty. Tarya’s BNPL gives you full flexibility in financing terms and risk management and offers deep user insights and customizable modules to suit your business needs.
One platform, multiple features – all at the click of a button!