These are the Best Buy Now, Pay Later Strategies
Check out Some Buy Now, Pay Later Strategies that Will Work Amazingly
Buy Now, Pay Later (BNPL) is a game-changer in the realm of contemporary microcredit. This Point-of-Sale (POS) financing arrangement benefits both retailers and consumers, serving as a major differentiator that supports merchants in gaining significant competitive advantages across various industries. The Buy Now, Pay Later system empowers consumers with low purchasing potential to make small, medium, and high-ticket purchases from their favorite stores using 0% or subsidized interest installment options. In this article, we’re going to showcase the benefits of Buy Now, Pay Later strategies that will elevate your business to new heights.
The Different Business Models of Buy Now Pay Later
1. Card-Linked Installments
Developing at a Compound Annual Growth Rate (CAGR) of double and triple digits, card-linked installments are a predominant type of POS financing in Asia and Latin America. It is essentially a no-cost EMI (Equated Monthly Installment) option with the help of credit cards, enabled for high-ticket purchases exceeding $1000 through subsidized merchant offers. However, card issuers in the United States, like American Express Plan It and Citi Flex Pay, have offered post-purchase installment payments, but their adoption rates are lower compared to 0% APR BNPL repayments at the point of purchase. Fintech companies leverage this opportunity by offering card-linked BNPL installments for EMI conversions in the pre-purchase, at-purchase, and post-purchase stages. Companies like SplitIt are prime examples of the card-linked installment model.
2. Virtual Rent-to-Own Models
The Virtual Rent-to-Own (VRTO) model allows consumers to make payments for items they wish to own. Once all payments are made, the purchase is deemed complete. More than 80% of cases in the VRTO model are from home appliances, electronics, furniture, mattresses, and other products that can be repossessed if needed. Growing at a 40% CAGR, the VRTO model targets the subprime consumer base with a low credit score.
Currently, most consumers have a credit score lower than 700. Major retailers, however, tend to receive special discounts from VRTO players under agreed conditions. Companies like Acima, Acceptance Now, and Progressive Leasing lead the BNPL space with the VRTO model. For instance, Progressive Leasing at Best Buy and Katapult at Wayfair, VRTO players have an integrated in-store and online presence, acting as secondary or tertiary financing providers.
3. Integrated Shopping Applications
Recording nearly four times the growth in 2020 alone, the integrated shopping functions model treats BNPL as more than just a credit item. It includes an all-encompassing ecosystem that drives engagement and value throughout every aspect of the customer’s purchase journey. Leading BNPL platforms like Afterpay, Klarna, and Sezzle have adopted an integrated shopping features approach to BNPL.
Companies offer top-notch savings options for both pre and post-purchase experiences while shopping for low-ticket items. Here, BNPL providers create sophisticated applications with well-integrated shopping, payments, financing, and banking ecosystems on a single platform. This type of Buy Now, Pay Later model is predominant in Southeast Asian countries.
4. Vertical-Focused Larger-Ticket Plays
The vertical-focused larger-ticket plays model focuses on financing high-value purchases up to $40,000. Growing at a 20% CAGR, they cater to high-ticket industries, such as elective and non-elective healthcare, veterinary services, power sports, and home improvement.
CareCredit in healthcare and GreenSky in home improvement are notable authorities in this segment of BNPL. High-value purchases usually occur in healthcare subcategories like dental, dermatology, cardiology, and more.
Furthermore, in-home improvement sectors, high-ticket purchases often involve Heating, Ventilation, and Cooling (HVAC), home remodeling, and solar paneling. Before venturing into this model, BNPL companies should meticulously assess the subcategories and develop a go-to-market strategy and end-consumer relationship.
This model and category are an excellent fit for banks seeking to acquire high-credit customers and strategically pitch mortgage refinancing and other financial services.
5. Off-Card Financing Arrangements
With a growth rate of 90%, the off-card financing model is suitable for industries such as electronics, furniture, home goods, sports equipment, and travel.
Unlike the integrated shopping applications model, off-card financing arrangements require consumers to pay 0% APR for a certain period, followed by a subsidized APR. Over 80% of consumers in this model have high credit scores with ample credit card accessibility.
However, they prefer BNPL for cheaper credit options. Consequently, the off-card model cannibalizes credit card transaction volumes for card issuers offering BNPL services. Merchants choose the off-card financing arrangements model when margins and customer acquisition costs are threatened, and cart abandonment rates are as high as 90%.
Providing card-linked installments offers a convenient financing method that mimics the 0% APR experience of off-card financing providers. However, card-linked installment payments are gaining popularity and pose a significant threat to off-card financing players like Affirm. Therefore, they take proactive measures, such as acquisitions, to integrate BNPL services with the shopping experience right from pre-purchase to returns.
6. SME Sales Financing
SME (Small and Medium Enterprises) sales financing is an excellent deferred payments model for small ventures lacking capital. Players like CIT and Dell Financial Services offer POS financing for SMEs that can be repaid in interest-free easy installments. Typically implemented as off-card payments, credit helps small businesses manage infrastructure costs through customized financing and leasing.
Companies like Solv and Zip take online lending a step further by financing SMEs to make all checkout payments in easy installments. They need to centralize payment management and integrate BNPL needs into their payment ecosystem. As the financing is for underlying business transactions, lenders can comprehensively understand the risk profile and repayment capacity.
The SME financing model benefits businesses, partnering fintech, and Non-Banking Financial Companies (NBFCs) by reducing costs, increasing disbursal volumes, and easing credit assessment without significant risk guidelines.
Wrapping Up
To wrap it up, these are the best Buy Now, Pay Later strategies that are effective and competing in 2024. These modern approaches offer significant advantages that can boost your business. Embrace one of these strategies to gain a competitive edge. Thanks for reading this comprehensive guide on BNPL strategies.