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Breaking Down The ‘Buy Now, Pay Later’ Business

Feb 2021

Buy Now, Pay Later – The Modern Way to Do Layaway

The Buy Now, Pay Later (BNPL) industry is a booming business. If you are unfamiliar with the term, or don’t fully understand the concept, think of it as a modern take on the layaway model that rose to popularity during the Great Depression, but with immediate gratification.

With traditional layaway programs, a customer makes periodic payments toward a purchase, and then takes possession of the purchase after it has been paid for in full. In the BNPL model, a customer selects an item, makes an initial payment on that item, and immediately takes possession of that item (or in the case of an online order, as soon as the item is delivered). Next time you are online shopping, look for an option to “pay now” or “pay later.” It’s typically accompanied by an explanation of the terms, such as “a series of interest free payments, starting immediately and then every two weeks.” That in a nutshell is a BNPL offer.

An Alternative to Credit Cards

This type of installment-based ‘microloan’ is positioned as an alternative to using a credit card. Whereas credit cards are intended to be used repeatedly, BNPL programs are applied to individual transactions, which makes them more appealing to consumers who want to make less of a financial commitment, even on lower ticket items.

Perhaps more importantly, BNPL programs aren’t designed to drive revenues through complex compounded interest rates, which can cause financial hardship for the many consumers who don’t fully understand what that means, or its implications. While many BNPL programs do include interest, they clearly communicate – up front – the total amount a consumer will need to pay. This way, there are no surprises and no quickly rising balances. Without a negative effect to their credit profile or interest rates that lead to further debt, consumers can minimize impact to their financial health. As long as the purchaser honors the terms of the BNPL offer, it’s typically a pretty good deal.

Two Trends Driving BNPL

These days, BNPL programs – and BNPL technologies that power them – are booming, and there are two key reasons why. First, younger people tend to distrust big banks, and many don’t have – or don’t want to have – a traditional credit card, but still need financing for purchases. Second, the coronavirus pandemic has led to a boom in e-commerce shopping, and also accelerated changes in the payment industry at large, with public health watchdogs having recommended the use of digital payments in order to reduce person-to-person contact and slow the spread of the virus. As a result, digital trends have seemingly advanced 10 years in last 12 months.

For many retailers, adding a no-cost payment option for customers is a no-brainer. It can help attract more online buyers, and also reduce the shopping cart abandonment that happens when shoppers see see how quickly purchase prices add up. Dozens of national chains, including Macy’s, Target, Sephora and Walmart now allow shoppers to order everyday items online, take delivery of them, and then pay for them over time.

Peloton, an American exercise equipment and media company that launched in 2013 with help from a Kickstarter funding campaign, now offers a BNPL option at checkout. Shoppers approved for the offer can opt to pay $49/month for 39 months, or a total of $1,911 versus paying $1,895 at once. B2B buyers may soon be able to BNPL as well, with efforts underway to provide instant and flexible invoice financing and smart expense management with the goal of making it easier for both merchants and business customers to transact.

The BNPL Technology Ecosystem

As with a credit card, it’s not the retailer who is facilitating the financial aspects of the transaction. Rather, it’s an application provided by companies such as Affirm, which recently went public, as well as forward-thinking traditional banks focused on innovation. However, many traditional banks are hampered by their legacy IT infrastructures, and thus are finding it difficult to leverage the kind of cutting-edge technologies that make BNPL a streamlined experience for consumers and retailers alike.

Providing these types of customer-centric experiences is becoming increasingly complex, and what lies beneath successful players across the BNPL movement and the wider financial services ecosystem is an automated, responsive, and robust IT infrastructure.

Implementing such an infrastructure is easier said than done. And this is what makes partnerships with experts like Panduit an important part of the puzzle. Future applications will need flexible IT to allow new technologies that deliver valuable innovative services. Panduit, alongside our vast partner ecosystem, is one way to give your systems the maximum flexibility.

Visit our website to learn more about how Panduit can help financial services organizations build physical infrastructures that drive best-in-class user experience, while reducing downtime and costly service delays.


Jennifer Vallarautto