14 November 2023Back to Blog
The Rise of Alternative Payment Methods in eCommerce: Pros and Cons of Buy Now, Pay Later
One of the biggest issues that ecommerce businesses tackle is cart abandonment. According to data gathered by Baymard Institute, 11% of shoppers abandon carts due to a lack of payment methods. So, why has this become a non-negotiable for ecommerce customers?
As the digital landscape is continuing to evolve, so is the way that we pay. Gone are the days of cash and credit being the only option, as shoppers are opting for digital wallets like Paypal and Apple Pay, or even delving into the world of cryptocurrency. With the rise of alternative payment methods comes the birth of ‘Buy Now, Pay Later’ (BNPL) options like Klarna and Clearpay, which allows shoppers to pay over a timeline that suits them and their bank account.
The Pros of Buy Now, Pay Later
There’s a reason that there are currently around 360 million BNPL users worldwide. In addition to the benefits it offers consumers, it can also have some great advantages for ecommerce business owners.
More High-Value Purchases
BNPL options allow payments to be split into manageable chunks that the customer can pay over a predetermined time frame. This is good for ecommerce businesses, as customers are more likely to make high-value purchases that they otherwise wouldn’t be able to afford. According to our partner BigCommerce, “Nearly half of BNPL users say this payment method enables them to spend 10% to 20% more than they would have been able to by using a credit card alone.”
As BNPL allows customers to pay in instalments, this opens up ecommerce businesses to a wider range of shoppers with varying budgets. For example, if you’re an ecommerce store selling high-end products, introducing BNPL could make your products much more accessible for people of all financial backgrounds, increasing the amount of potential customers for your store.
Enhanced User Experience
Your customers want to get through the checkout process seamlessly. By covering a large number of payment options in your ecommerce checkout, you’re giving your customers the freedom to pay how they want to with ease. This is especially important in the age of omnichannel selling, where customers want a frictionless buying experience and digital wallets represent 45% of ecommerce purchases.
The Cons of Buy Now, Pay Later
Although BNPL payment options offer a lot of benefits, there can be some downsides that business owners should be aware of.
Increased Return Rates
Having such easy access to BNPL payment options can be a slippery slope. As BNPL can cause many consumers to begin overbuying or buying outside of their means, this can mean a sharp increase in returns for merchants to deal with. The returns process can also become even more complicated due to the addition of late fees and interest charges, which can mean customer dissatisfaction directed at your business, despite the fact that this may not be in the business’ control.
In order to be prepared for an increase in returns, or to see our tips for avoiding this, check out our whitepaper ‘The Point of No Return: A Retailer’s Guide to Returns’.
Higher Merchant Fees
As a merchant offering BNPL, you’ll have to pay a fee of approximately 2-8% for each transaction. As BNPL services become commonplace in online checkouts, higher merchant fees can begin to eat into your profit margins.
The Difficulty of Finding the Right BNPL Provider
With BNPL providers multiplying, it can be difficult to know which one is best for your business. Wading through each provider’s varying terms and processes can prove to be a confusing and time-consuming task that can be difficult for businesses with a lack of resources. However, agencies like 5874 Commerce can help businesses make these decisions by offering their ecommerce expertise.
While BNPL is becoming a non-negotiable for many consumers, it does have disadvantages that ecommerce businesses should be aware of. To ensure you’re offering the right shopping experience for your customers, contact 5874 Commerce here to see how our ecommerce experts can help your business.