Today, millions of online shoppers use Buy Now, Pay Later schemes to pay for goods and services. When used responsibly, BNPL offers consumers a cheap (and in many cases free) way of accessing credit, whilst businesses are increasingly seeing the benefits of offering this payment method to end-users.
The rise in popularity of BNPL
Buy Now, Pay Later schemes have existed for decades in one form or another. However, with the explosion in popularity of eCommerce in recent years, as well as the dramatic effects of COVID-19 on the retail landscape, this payment method is now extremely popular.
Over three-quarters of UK businesses (78%) expect the use of Buy Now, Pay Later to increase as living costs rise, according to market research by ECOMMPAY in collaboration with Censuswide. As this payment method’s popularity grows, large industry players such as Apple are offering their own take on BNPL, as well as fintech companies such as the UK-based Revolut.
How does this payment method work?
From the point of view of end-users, Buy Now, Pay Later is pretty simple in operation. When customers choose to pay using BNPL, they effectively enter into an interest-free, point-of-sale loan. In most instances, payment will be split into equal instalments that will be repaid over a period of three to four months.
What does a BNPL checkout process look like?
Fintech platforms have made the payment flow for Buy Now, Pay Later purchases both simple and speedy. Customers can initiate a purchase with a few taps of a screen, and if they’ve chosen to pay in instalments, a soft credit check is carried out behind the scenes via Open Banking API or the lender’s own algorithms. These types of checks have no impact on credit scores and usually happen within seconds, with a maximum wait time of a couple of minutes.
Once a BNPL plan has been set up, the merchant receives the full sale price up front, with their payment provider handling the collection of instalments and receiving a cut for every transaction made using this option.
Buy Now Pay Later in the Travel Industry
Buy Now, Pay Later offers travel companies plenty of advantages. As consumers plan ever more elaborate (and expensive) trips, BNPL is becoming one of an increasing number of payment options offered by travel agencies, as the sector rebounds from the hiatus of the COVID-19 pandemic.
As the public returns to booking vacations, an ever-increasing number of payment options are emerging to assist the industry’s regrowth, with travel companies steadily expanding the range of financial services offered to customers.
According to an ECOMMPAY survey of travel and aviation representatives made in 2022, 94% of industry respondents noticed a rise in the popularity of BNPL schemes. However, this payment method does have downsides, so it’s imperative for businesses to weigh up the advantages and disadvantages before integrating it into your checkout.
The Advantages of BNPL for the Travel Sector
When merchants make a sale with BNPL as the payment method, they’re afforded a certain amount of financial protection, as they receive the total cost of the sale up-front, with the BNPL scheme provider collecting the instalments.
Potentially Higher Spend Per User
With the option to split payment into instalments, some consumers will be happy to spend more than they would in a single transaction. That means it could prove easier to upsell longer trips, guided tour add-ons or hotel upgrades than would normally be possible.
Broadly speaking, the more payment methods a merchant offers, the better their conversion rate. By providing more choice and flexibility at checkout, consumers are more likely to complete a purchase. In addition, an ECOMMPAY survey of businesses and end-users conducted in 2021 found that approximately 25% of shoppers would abandon a checkout page if their preferred payment method wasn’t available.
What About the Disadvantages?
As advantageous as Buy Now, Pay Later schemes might seem at first, there are several potential downsides that you’ll need to discuss with your payment provider before deciding to implement BNPL into your payment workflow.
Potential Integration Headaches
Adding Buy Now, Pay Later to your checkout will inevitably cost time and money to integrate. You’ll need to carefully weigh up whether that investment is worth it in the long run, as there’s no guarantee your customers will use this payment method.
When all is said and done, BNPL is still a form of credit. That means the scheme is open to abuse by high-risk customers who might be tempted to overspend. Whilst you will receive payment upfront, a large volume of missed payments from your customers could quickly dent your reputation.
Negative Image & Incoming Regulation
Strengthening regulations means that consumers will be offered greater protection when entering into BNPL schemes, and retailers will need to ensure they’re compliant. In part, the regulations have been introduced due to negative public opinion. Although avoiding unmanageable debt is ultimately a personal responsibility, merchants are also responsible when it comes to educating and warning consumers about the risks involved.
As Buy Now, Pay Later schemes grow rapidly in popularity across a wide range of industries, it seems highly likely that they will soon become mainstream on the checkout pages of travel agencies.
BPL offers a greater degree of flexibility to consumers, at the same time helping to improve sales conversions and profits for merchants. However, with the introduction of more stringent government regulations, choosing a reputable payment provider who understands the legal landscape will become vital.
About the Author
Olga Karablina is head of payment product development at ECOMMPAY — a leading international payment service provider with its own fintech ecosystem for business growth. Olga focuses on developing and expanding ECOMMPAY’s payment method portfolio, helping companies to scale globally.