Buy Now, Pay Later: a Revolution in Payments

While online shopping has been democratized in an unprecedented way, consumers are still looking for the most secure and flexible payment options. The rapid growth of buy now pay later solutions has transformed how shoppers interact with e-commerce brands. The buy now and pay later model is one of those revolutions that increases flexibility for the consumer while allowing them to build confidence with online merchants they may have never shopped with before.

 Whether it’s Klarna, Mollie, or paypal pay in 3, the function of these BNPL platforms is similar: consumers get the product immediately without a full upfront payment. Shoppers are given the option to pay in installments, meaning they choose to pay now and split the cost. This buy now pay later option allows customers to pay nothing at purchase and commit to a clear repayment schedule. The option to pay in shorter cycles like and pay in 3 equal parts, or longer terms, means pay in 3 is just one example of how flexible pay later payment options have become. Forget traditional credit cards; this is the new way to finance online purchases from buy now pay later providers.

 The United Kingdom is one of the most mature BNPL markets in Europe. According to UK Finance, BNPL lending reached £10.8 billion in 2022, and growth over the past 12 months continues up to new highs. A study by Klarna revealed that 60% of UK shoppers say BNPL helps them manage their budget better, and merchants offering BNPL see an average increase in conversion rates by 20-30%.

What is Buy Now, Pay Later?

Buy Now, Pay Later, known as BNPL, is a short-term consumer credit solution designed to buy time for shoppers who need to pay immediately but prefer to use installment plans. Functioning similarly to a hire-purchase agreement, the customer pays a portion upfront and commits to pay the remaining balance over months or weeks. Unlike traditional loans, BNPL typically allows you to pay interest-free if you pay on schedule.

How Does the Buy Now, Pay Later Solution Work?

The process is designed to make checkout seamless and frictionless you to complete purchases quickly:

1. Selection: At checkout, you buy your items and select the BNPL method.
2. Redirect & Account Creation: You are redirected to the provider’s interface to log in or create an account.
3. Soft Credit Check: Basic details are entered. The provider performs an instant eligibility check.
4. Approval & Payment: Once approved, the first installment is charged. The payment is processed immediately, and goods ship days later or up to 30 days later depending on the merchant’s fulfillment speed.
5. Merchant Payout: The merchant receives the full amount upfront, minus a small fee.
6. Repayment: The customer repays in scheduled installments. If a late payment occurs, pay interest or fees can be applied. Missing a deadline means to miss a payment could trigger penalties, and if you miss a payment repeatedly, account restrictions may apply.

How BNPL work for Merchants

For merchants, the platform provides payment in full upfront. The selected BNPL solution endorses the risk of the multiple postponed payments from the customer over the defined period. This means the merchant gets cash flow immediately without worrying about collection efforts or default risks. You simply need to pay attention to order fulfillment, while the provider handles the rest. It’s easy to make a profit without taking on additional risk.

BNPL for Consumers

Does BNPL Affect Credit Score?

It depends on the BNPL solution:

• Short-term ("Pay in 3/4"): Usually, your credit score is not impacted by the initial soft check. However, missing a payment can still cause negative impacts. In the UK, providers now report missed payments to credit reference agencies.
• Longer-term Financing: For higher amounts, solutions are more likely to involve hard checks. In this case, it impacts the score similarly to a credit card application.

Does BNPL Apply Supplemental Fees for Customers?

Generally, no. Most major BNPL providers do not charge interest or fees to the consumer if you pay on time. However, late payment fees may apply if a scheduled payment fails. It is crucial for consumers to read the terms, as some long-term financing options may carry interest rates similar to personal loans. You should never pay any hidden charges without reviewing the agreement first.

Which Buy Now, Pay Later Providers Should You Choose?

Mollie: Your Payment Solution for Accepting BNPL Payments By implementing Klarna via Mollie, you get simplicity and flexibility. With our module for PrestaShop (and other major platforms), you have easy access to the payment solutions your consumers love. You'll also get the easiest way to implement and manage this BNPL solution. With Klarna, you can offer the ultimate payment flexibility.

Implementing Klarna with Mollie doesn’t only give you a carefree implementation process. It also offers you:

• Transparent Pricing: No hidden fees.
• Advanced Features: Tools to get the most out of your money management.
• International Reach: Whether you want to grow internationally or focus on a specific market, Mollie supports all major European payment methods, so you can build and grow your business wherever you want.

Benefits of Using Buy Now, Pay Later as a Payment Method

1. Increase Conversion and Average Order Value (AOV)

As consumers look for flexible options, stores providing a complete offering have a competitive advantage. With the increased adoption of buy now pay later payment methods, e-commerce businesses accepting these methods are in prime positions to respond to customer needs and diversify their clientele.

• Higher AOV: Studies show BNPL can increase Average Order Value by 20-50% because customers feel more comfortable purchasing higher-ticket items when costs are spread out.
• Discovery: Klarna developed an online catalog where consumers can discover where they can buy using their preferred provider. Merchants can display their products on the provider’s app, driving new traffic to their stores.

2. Build Trust for a Better Customer Experience

Being able to "try before you pay" has never been easier. As its name suggests, BNPL allows customers a flexible way to shop without increasing the risk for online shops. Should customers like the product, they keep it; if not, they can return it without having paid the full amount upfront. While this may slightly increase the likelihood of returns, it significantly lowers the barrier to purchase and relies on the product to “do what it says on the box.” Trusted brands benefit immensely from this, as it results in more purchases, increased trust, and improved loyalty.

3. Provide Consumers with an Improved Credit Solution

BNPL is a much more affordable finance solution than traditional revolving debt for many consumers and may be a safer form of short-term borrowing than payday loans.

 What about merchant risk? As a merchant, you might be concerned about what happens if consumers don’t pay. With solutions like Klarna integrated via Mollie, you are paid out within five business days after the shipment of the product (or after the first payment for Klarna Pay In 3). The BNPL provider takes the risk of the transaction in case a customer defaults. You get the certainty of cash flow, while they handle the credit risk.

Your Competitors May Already offer BNPL

Given the growing trend in BNPL and the benefits it can provide to your online store and consumers, it is highly likely that your competitors have already picked one or more solutions in this space, and if not, they probably intend to do so soon! This should not be the reason you lose customers to them… but the good news is that you don’t have to!

Mollie as your payment solution for accepting BNPL payments

By implementing Klarna via Mollie, you get simplicity and flexibility. With our module for PrestaShop, you have easy access to the payment solutions your consumers love. You'll also get the easiest way to implement and manage this BNPL solution. With Klarna, you can offer the ultimate payment flexibility.

Implementing Klarna with Mollie doesn’t only give you a carefree implementation process. It also offers you transparent pricing and countless features to get the most out of your money management.

Whether you want to grow internationally or focus on a specific market, Mollie supports all major European payment methods, so you can build and grow your business wherever you want.