Buy Now, Pay Later - deferred payments in the service of eCommerce

A popular buzzword, a temporary boom, the solution of the future - no matter what term you encounter in the context of deferred payments, what is certain is that they are changing the functioning of the eCommerce sector. It is common for customers to delay the purchase of given products in anticipation of additional funds in their accounts. What's more, sometimes, in order to decide on the best product, they order several proposals to try them out or try them on - in both cases, postponing payment avoids overburdening the budget in a given month. Not surprisingly, the above form is gaining in popularity (especially in times of high inflation and sensible management of household budgets), and more and more online stores are introducing solutions designed by entities such as Klarna, Twisto, PayU or Przelewy24 into their payment methods.

What are the characteristics of deferred payments?

Deferred payments are a novelty on the eCommerce market. Although, as statistics show, this option is most often used by representatives of the younger generation (due to their love of modern solutions), according to a survey conducted by the Klarna service, more than 70% of Polish shoppers have already heard about the possibility of using the BNPL method. What is the phenomenon of this solution?

Deferred payments are in fact nothing more than an innovative approach to consumer credit, adapted to the realities of eCommerce. What sets them apart? The main difference between BNPL and a traditional form of credit is evident from the very beginning of the process, i.e. during the credit evaluation. Meeting the formal requirements is not time-consuming and only requires filling out an application, and the consumer's financial capabilities are assessed by mechanisms based on artificial intelligence and machine learning. A customer deemed reliable by the algorithm can take advantage of two options:

• Payment after a certain period of time - most often payment is made after 30 days (although some services extend the deadline up to 54 days),
• Spread the payment over 3 - 4 installments - in this case, the cost of any interest on the loan is usually paid by the seller.

What are the next steps? Basically, the order process remains the same - payment for the goods is made immediately through the BNPL service. The customer does not have to worry about a delay in the shipment of goods, and has the same rights of return, warranty or complaint as with traditional forms. What's more, the final settlement doesn't have to require a connection to a bank account at all - it's possible in a number of ways, including BLIK, quick transfer or card. But what if the consumer fails to settle the obligation within the stipulated time? The consequences of failing to meet the deadline are specified in the contract concluded with the service providing the deferment service, but statutory interest for late payment will certainly be charged each time.

Buy Now, Pay Later - beneficial not only for the consumer

Choosing a payment method is one of the last elements of the purchase path. The average consumer most often doesn't check which forms are available on an online store, assuming they will find the one they prefer. Blue Media's 2021 study, however, found that as many as 50% of online shoppers happened to abandon their purchases because they didn't have the expected form of payment. The introduction of BNPL can therefore help minimize the number of abandoned shopping carts - especially when the cost of the purchase turns out to be higher than the customer anticipated. The prospect of incurring the expense at a later date may determine the finalization of the order, thus significantly increasing sales. The benefits for both parties - customers and eCommerce owners - associated with extending the payment catalog with the BNPL module can be found in the table below.

Now that it's clear that there are benefits to introducing the above mechanism into eCommerce, it's time to consider what implementing this option in an online store entails.

While it is free for the customer to take advantage of this opportunity, there is a cost to the store owner. The launch of the service itself is free, while it should be kept in mind that a commission is charged on each BNPL transaction, the amount of which is determined by a legally specified scales (currently it is a little over 7% per year).

Buy Now, Pay Later is a digital product - the payment module is characterized by responsiveness, meaning that it works the same on both computers and mobile devices. In addition, the customer gets financing in a single purchase process - without the need for an external service provider's website - which significantly improves the quality of their shopping experience.

Deferred payments in the face of modern challenges

The dynamic development of deferred payments is confirmed by statistics - only in 2022 as many as 73% of Polish e-shops implemented the BNPL method, an increase of 143% compared to 2020. Despite the stable and dynamic development, Buy Now, Pay Later faces many challenges - what is worth preparing for?

Legal changes

Note that deferred payments are nevertheless a form of credit. However, the service is offered by fintech companies, not banks, so it is increasingly being argued that changes in the law have not kept pace with increasing digitalization. In the Polish legal state, there are no separate regulations relating directly to deferred payments, and entrepreneurs often offer this service based on statutory exceptions (e.g. regulations on so-called free credit).

Currently, work is ongoing at the European Union level to revise the Consumer Credit Directive to eliminate such loopholes. Its main goal is to increase consumer protection. However, experts predict that the aforementioned changes may negatively affect the attractiveness of the form, as they mainly concern such aspects as creditworthiness assessment and information obligations. At this stage it is difficult to predict the real effects of the changes, but you should certainly keep an eye on the topic if you have introduced or plan to implement this payment method in your eCommerce.

Economic situation

The economic crisis, high inflation and rising interest rates - consumers' purchasing decisions are not indifferent to these factors. On the one hand, they are prudent in planning their purchases, limiting their spending, but on the other hand, the fear of a continuous decline in the value of money promotes impulsive decisions. What can planning finances under the influence of emotions lead to? The answer to this question is illustrated by a study by the Polish Economic Institute, which reports that in 2021 up to 56% of Americans were late with their Buy Now, Pay Later payments, which can be read as the beginning of a global social problem. Dynamic changes in interest rates, in turn, translate into lower eCommerce profits as they affect the amount of commissions charged to e-business owners. Because BNPL is a product that has only been around for a dozen months, it is difficult to determine what impact it will have on the economy in the long term.

Growing competition

The unquestionable success of BNPLs in the market has resulted in more and more companies not only choosing to incorporate them into their eCommerce, but also showing a desire to provide such services themselves. In July 2022 The Office of Competition and Consumer Protection (OCCP) positively assessed the application to expand the BLIK Polish Payment Standard precisely to include deferred payments. Apple is also trying its hand in this area - the California-based giant has announced that it will offer BNPL services exclusively for those using iOS-based devices. Such a debut may contribute to a temporary imbalance in the market, however, the increase in competition means, above all, making the offer more attractive to consumers. It also provides a fuse to create even more innovative solutions.

Buy now, pay later - prepare for the future

What does the future hold for deferred payments? Despite the need for structural changes and modifications to business strategies ( due to new legislation, for example), deferred payments will certainly strengthen their position in the market. This is supported by the results of a Juniper Research report, which predicts that by 2026 BNPLs will account for more than 25% of all global transactions (in 2021 the share was only 9%). The above figures confirm that it is worth introducing the Buy Now, Pay Later method to your online store to increase your profits now - especially in times of inflation, when consumers are increasingly eager to use this solution.

Are you ready for a new dimension of online payments in your online store?