Why pay full price when you can pay just a fraction of the total cost upfront, and pay the rest later? It’s a question furniture stores have been asking customers for years, but now it’s also being asked by thousands of online retailers who are trying to encourage their visitors to spend more. Even major companies like Apple are all aboard for BNPL; the company plans to introduce a payment plan for their devices in the near future.
While these “buy now, pay later” tools seem to cater specifically to e-commerce at the moment, they likely won’t be restricted to the web forever—as most, if not all companies operating in the space are currently looking for ways to integrate with brick and mortar stores. So who are the organizations propelling us toward this revolutionary shopping experience?
We took a look at five of the biggest names in the Buy Now, Pay Later (BNPL) scene to give merchants and consumers an idea of what’s out there and how this method of payment is being utilized by retailers and customers alike.
First up is SplitIt. This U.S. based company definitely focuses on appealing to merchants and seems to be an ideal option for those selling luxurious goods. On the consumer end of things, with SplitIt, payments can be made over 3, 6, 12, or 24 months, depending on what each individual merchant is most comfortable with. There is no interest passed on to the consumer, and because the consumer’s existing credit card is being used, there are no additional credit requirements or checks needed. SplitIt emphasizes giving the customer the time they need to pay, and even offers their customers the ability to make early payments if they choose.
To note for businesses: if you want to use SplitIt, they will require you to meet a minimum annual processing volume of $500,000 in sales, and also want to see that you’ve been in operation for at least one year. You’ll also be paying more in fees (3% per transaction plus $1 per installment) if you want the whole amount of your customers’ purchase right away, rather than waiting to receive it in installments.
AfterPay is by far the biggest name in the BNPL space at the moment, and they offer a simple pay in four option. AfterPay doesn’t charge any late fees or interest, but they do limit how much you can spend initially. (To find out how much you’re approved for, you’ll need to sign up.) In August 2021, it was announced that AfterPay would be acquired by Square (the payment processing company who’s celeb CEO also founded Twitter).
How it works is: the more a customer uses AfterPay, the more they may be approved to spend in the future; so as the ability to make payments is proved, AfterPay increases the spending limit. On the other hand, if you fail to make your payments, AfterPay will suspend your account. They don’t report to credit bureaus, so your credit score won’t be affected, but you’ll no longer be able to benefit from their BNPL service.
To note for businesses: AfterPay offers cross border trade between the UK, Canada, and Australia, but for all of your orders processed through them you’ll be paying in the range of 4-6% per transaction.
These guys claim to be the “highest shopper rated” BNPL service and like their counterparts, assume all the credit risk for their merchants. How they manage this risk is by passing fees on to customers who don’t make their payments on time. Sezzle also offers an upgraded version of their service called “SezzleUp” that reports to a credit bureau and is designed to help customers build credit.
Sezzle utilizes an automatic fee collection system so that merchants don’t need to worry about a monthly bill. And what are the fees exactly? Well, they’re two-fold. There’s a set percentage Sezzle charges on each order (6%), plus a processing fee on top of that (30 cents per transaction). Similar to AfterPay, this information is not the easiest to find on their website.
This is the only BNPL service that specifically mentions on their website having different rates for merchants depending on the size of your business and how much you process. They also allow you to set minimum order amounts so you can decide at what price point it becomes beneficial for your business to split payments for a product you have on offer.
PayBright is the only Canadian company on our list and the only BNPL that may actually perform a credit check when a customer applies to use their service. They also charge fees for late or missed payments.
There are two ways to pay with PayBright: a quick and easy “pay in four” (bi-weekly payments) option, or equal payments spread out anywhere from six to sixty months. They make it clear that they are the ones assuming the risk associated with nonpayment so merchants are not at threat, and—a major bonus for businesses—they offer next day funding.
PayBright claims to be a “fair and transparent” BNPL provider, and it’s worth mentioning that they do actually have their merchant agreement posted on their website for you to peruse. Some of the other BNPL companies seem to be less forthcoming with their agreements so we thought this was a nice touch.
Though they’re one of the biggest names in payment processing, PayPal has just recently jumped in on the BNPL action, having introduced their “Pay in 4” feature in late August 2020. While PayPal is certainly the largest organization on our list, there are still currently a few limitations with their BNPL service. At the time of writing they are only available in the US for purchases between $30 and $600, and in order to apply, you must have a PayPal account in good standing. Beyond PayPal’s standard processing fees, we were unable to find out what they charge for their BNPL service.
This BNPL service just recently had its IPO on the NASDAQ and is being closely followed by merchants and investors alike. Affirm is definitely a bottom-line savvy company and are making sure that if they’re taking on debt risk, they’re still going to get paid.
Affirm are unique in this space because they actually charge consumers interest. The key difference between them and a credit card company however, is that Affirm utilizes a simple interest payment plan, meaning your interest doesn’t compound over time like credit card interest does. According to their website, this is so that “you’ll never pay more interest than you agree to on day one”.
They’re biggest claim to fame is that they don’t have any late fees (and you can take up to 36 months to pay), but they do report to credit bureaus, so late fees and partial payments can hurt your credit score. Another interesting feature they offer is a one-time-use virtual card that you can use to purchase something online or in-store but still allows you to pay over time. Because they’re passing on some of the cost of their service on to customers, Affirm is a little cheaper for merchants—you’ll be paying them 2-3% per transaction.
In some major news for BNPL: Amazon announced it would partner with Affirm in late August 2021.
What Merchants Need to Know
Buy now, pay later is flipping the traditional credit card model on its head by passing the cost of financing on to retailers, rather than card users. Understandably, if you’re a merchant, you might be wondering, “Why should I pick up the tab for someone who can’t afford something today?” Well, the key thing BNPL services advertise is their ability to increase web traffic conversions.
The statistics vary for each service, but on average the numbers come down to between 15-25% fewer abandoned carts, in addition to higher overall order values. It seems that on the whole, customers are more willing to pull the trigger on a high priced item if they know they don’t need to pay for it all right away.
Another thing worth noting is the settlement time that some of these services outline: with Sezzle for example you may receive your funds in one business day…or seven. While this might not always be the case, if you’re a business that needs immediate access to funds in order to operate, BNPL might not be for you.
Finally, one of the reasons merchants may want to exclusively use BNPL for higher priced items is because BNPL services are not payment processors in their own right. Meaning if you do use one, your payment processor is going to take their cut of the transaction, and then the BNPL service will take their cut on top. If your products are cheap or have a low markup, using a buy now, pay later service can seriously affect your margin.
What Customers Need to Know
On the other side of this equation, consumers need to beware of not just the amount they’ve spent today, but how much they will be spending over the lifetime of their agreement. If a customer were to make a lot of purchases using the BNPL model, it could present an over-extension risk, whereby people are unable to meet their payment obligations. BNPL is almost a forced form of budgeting, but for the big purchases, it may still be best to tuck some cash away over a few weeks or months so you’re not at risk of forgetting what you signed up for.
Overall, BNPL integration can be a great tool for your business if you’re a merchant currently accepting credit cards, but it remains to be seen how large a role they will play in the future of payments. As of right now, BNPL services mostly benefit merchants operating in the online sphere with products in a mid to high price range, and do not integrate with all payment processors, but it may not be too far down the line when “buy now, pay later” becomes more common everywhere that goods and services are being sold.
Helcim Inc. is in no way affiliated with any of the above buy now, pay later websites. This article is meant to offer an objective overview of buy now, pay later services for educational purposes only and is not an endorsement. Some details regarding the above-mentioned companies and their respective consumer and merchant agreements may have changed since the time of writing.