What is Buy Now Pay Later?
The so-called Buy Now, Pay Later or BNLP services are characterized by the fact that they allow users and customers to purchase a product or service without having the necessary capital. The company providing the service pays for the purchase in exchange for a commission.
As a result, businesses can have that income available in advance. Likewise, customers acquire greater purchasing power without commissions or interest. According to one of the latest studies carried out by PYMNTS, a site specializing in economics and finance, Mastercard has around 80 million users of its BNPL service -and a year-on-year increase of 30% is expected-.
The Spanish fintech SeQura, for its part, claims that the commercial performance of a business can increase by up to 26% above the average, and purchase frequency by up to 19%.
How to use Buy Now Pay Later in my business
BNPL services improve the conversion rate of users and consumers into customers, as well as increase the purchase frequency and reduce the merchant regret rate.
First of all, the conditions of the BNPL service that we are going to contract must be evaluated. Since it is a short-term financing method, it is necessary to know the type of commissions and costs associated with the service.
The next step is to select a provider that can guarantee the security and operational capacity of the transactions. Since this is a commercial relationship that requires banking and financial data. This is essential to provide this service.
To effectively integrate the BNPL service to our business, the so-called application programming interfaces or APIs are used. These can be integrated in two ways: we can have our own service, which is more complex, or directly choose an e-commerce platform that includes it.
Different types of Buy Now Pay Later
There are three different types of BNPL depending on the type of provider you contract with. Generally these are services that can be contracted online. This is an increasingly common phenomenon due to the commercial return and the secure sales opportunity it provides.
As the name suggests, this service is contracted directly with a provider that has its own API for businesses and products for the trade. This option offers the best performance, although it is also more expensive if you do not have a high volume of sales. Among the various providers of this type, the U.S.-based Affirm stands out.
This type of supplier actually operates as an intermediary between direct suppliers and smaller businesses. Their activity is based on offering the management of this type of services in exchange for a smaller consideration for each client. This category includes regional marketplaces.
Finally, this type of provider offers a service in which, retroactively – that is, after the purchase has been made – they allow consumers to add the credit card purchase to a BNPL payment, which reduces the interest charge and the cost of the service. Among the most representative providers of this type is the U.S.-based Amex.
Buy Now Pay Later applications for financial scoring
BNPL services incorporate techniques typical of the financial field. One of the most important is financial risk analysis or financial scoring.
It consists of determining the level of risk and payment capacity of a given customer, as well as creating an accurate credit history of customers and their online financial activity.
This BNPL feature speeds up the commercial activity by reducing the evaluation of each customer’s credit score and also allows the customer to access short-term financing without the need to carry out any other procedure. Therefore, it significantly improves the analysis of financial risk without requiring more effort, thanks to the requirements of open banking.
How it applies to open banking
BNPL services are part of a financial transformation trend that consists of the free circulation of financial and commercial information, which we call open banking. This improves the performance of transactions and provides an accurate profile of customers.
BNPL applied to open banking relies on APIs to make available legitimately obtained financial databases with customer authorization to streamline transactions and link different companies and institutions. Similarly, this makes it possible to create personalized offers of financial products and services that are tailored to customer profiles.
Open banking represents a change in the financial paradigm. In this sense, buy now pay later services are one of the most significant advances in terms of commercial performance and accessibility of e-commerce.