BNPL: Confessions of a Merchant

I am Sally Mainstreet Merchant who invested in cloud commerce 10 years ago. With COVID, we have pivoted most of the company’s efforts into our online operation. Optimizing checkout for our customers is key for me.

Like most merchants, my goal at checkout is to eliminate friction. Undue clicks to commerce drive basket abandonment. Any dwell time at check out is a lost sale. If the consumer has intent-to-buy, I want to let them buy by any means possible.

I have a number of checkout options and in all cases I get paid in full. We added Buy Now Pay Later (BNPL) 12 months ago.

Upfront fees seemed high:

  • Credit card-not-present transaction online are around 2 – 4%
  • BNPL offer between 4 to 8 %

But credit card after-purchase fees can cost me even more:

  • Credit cards make the merchant carry the risk of fraud & charge-backs.
  • BNPL carries this liability.

Initially, I thought BNPL would cannibalize other payment methods; but I find I am getting two very different kinds of shoppers on the two channels. Many of my younger consumers do not want to use credit cards. And existing credit card users seem to continue being credit card users. I saw ~10% of the traffic selecting BNPL.

For the customer, the outcome is similar. It seems more of a lifestyle decision. In both cases, there is no interest if the payment is made on time at the end of the billing cycle: credit card monthly and BNPL usually split into four bimonthly payments.

And for me, all I care about is payment paralysis. BNPL drives an increased basket for me. Typical ~20-30% higher AOV vs other payment methods, up to 30% increase in conversion, lower returns, higher repeat purchase, etc. Ultimately, it comes down to incremental sales and new customers.

What I did not anticipate was that BNPL is a two-sided network. Many of my BNPL partners actively market and promote my store to their user base – a younger base. They have a captive social media following and have featured our store a few times. We have seen referral traffic and the cost of acquiring a customer is considerably cheaper vs. spending money on Facebook and Instagram ads.

Sincerely,