Buy Now Pay Later is a gamechanger in the realm of present moment microcredit. This POS financing arrangement benefits the two merchants and consumers and serves as a basic differentiator, helping sellers gain significant competitive advantages across industries.
The buy now, pay later office empowers consumers with low buying capacity to make little, medium, and expensive purchases from their favorite retailers utilizing 0% or subsidized interest installment options. BNPL serves as an inclusive monetary onboarding instrument that drives increased conversions, easier new customer obtaining, higher AOV, and greater customer retention.
The different Business models of Buy Now Pay Later.
I. Card-linked installments
Developing at a CAGR of double and triple card-linked installments is a predominant type of POS financing in Asia and Latin America. It is essentially a no-cost EMI choice with the help of credit cards, with the capacity to enable high ticket purchases of over $1000 through subsidized merchant offers. However, card issuers in the US like American Express Plan It and Citi Flex Pay have allowed post-purchase installment payments; their reception rates are low compared to 0% APR BNPL payments at the purchase point. Fintechs leverage this open door by presenting card-linked BNPL installments for EMI conversions in the pre-purchase, at purchase, and post-purchase stage. Companies like SplitIt are genuine examples of the card-linked installment model.
II. Virtual rent-to-possess models
The virtual rent-to-possess (VRTO) allows consumers to make payments for items they wish to claim. Once every one of the payments is made, the purchase is deemed complete. More than 80% of the cases in the VRTO model are from home appliances, electronics, furniture, mattresses, and products that are possible to repossess. Developing at a 40% CAGR, the VRTO model targets the subprime consumer base with a helpless credit score. Currently, most of the consumers have a credit score lower than 700.
However, there are no credit checks with super quick endorsements, negligible deposits, and flexible payments; merchants don’t reduce APRs for consumers. In any case, large sellers tend to receive great limits from VRTO players on prescribed conditions. Companies like Acima, Acceptance Now, and Progressive Leasing are leading players in the BNPL space with the VRTO model. Like Progressive Leasing in Best Buy and Katapult at Wayfair, VRTO players have integrated in-store and advanced presence and serve as second or third-level financing providers.
III. Integrated shopping applications
Recording almost four times more development in 2020 alone, the integrated shopping applications model treats BNPL as more than simply a credit item. It comprises an all-encompassing ecosystem that drives engagement and value through every facet of the customer’s purchase journey. Leading pay in 4 players (i.e., companies that let customers pay in four installments with no interest) like Afterpay, Klarna, and Sezzle take on the integrated shopping applications way to deal with BNPL. Companies offer different credit choices for pre and post purchases while buying low tickets.
Here the BNPL players create super applications (a centralized, one-stop application that enables consumers to shop at different virtual marketplaces without the hassle of marking all through different applications) with well-integrated shopping, payments, financing, and banking ecosystems on a single stage. This type of buy now, pay later model is predominant in South-East Asian countries.
IV. Vertical-focused larger-ticket plays
The vertical focused larger ticket plays model focuses on financing high-value purchases of almost $40,000. Developing at 20% CAGR, they cater to high ticket industries, for example, elective and non-elective healthcare, veterinary, power sports, and home improvement. CareCredit in healthcare and GreenSky in home improvement are category specialists here of BNPL.
High-value purchases, as a rule, happen in healthcare subcategories like dental, dermatology, cardiology, etc. Furthermore, in-home improvement high ticket purchases happen in heating, ventilation, cooling (HVAC), home remodeling, and sunlight-based paneling. The category leaders in these sectors partner with unique equipment manufacturers (OEMs) to achieve scale, manage edge pressure, and counter larger advance tenures and tax break suggestions.
Before venturing into this model, BNPL companies must carefully assess the subcategories and decide in a hurry to-market approach and end-consumer relationship. This model and category are an excellent fit for banks that seek to acquire high-credit customers and strategically pitch mortgage refinancing and other financial services.
V. Off-card financing arrangements
With a development rate of 90%, the off-card financing model is perfect for industries like electronics, furniture, home merchandise, sports, home fitness equipment, and travel. For example, Affirm and Uplift cater to this mid and high-ticket, low-frequency purchase financing that requires regularly scheduled payment payments over eight to nine months.
Unlike the integrated shopping applications model, off-card financing arrangements mandate consumers to pay a 0% APR for a certain period and afterward a subsidized APR. Over 80% of consumers in this model have high credit scores with sufficient credit card accessibility. However, they choose BNPL for cheaper credit. As a result, the off-card model cannibalizes credit card exchange volumes for card issuers who offer BNPL services.
Merchants choose the off-card financing arrangements model when edges and customer obtaining costs are harmed, and truck abandonment rates are just about as high as 90%. Also, giving card-linked installments enable a smooth financing process that matches the 0% APR experience of the off-card financing providers. However, card-linked installment payments present a severe threat to off-card financing players like Affirm. Hence they take significant steps to avert the danger through acquisitions that help them join BNPL services with the shopping journey right from pre-purchase to returns.
VI. SME sales financing
SME sales financing is a great deferred payments model for private ventures coming up short on capital. Players like CIT and Dell Financial Services deliver POS financing for Small and Medium-sized Enterprises that can be repaid in interest-free easy installments (if repaid before the prescribed period). Generally done as off-card payments, credit helps little timers manage infrastructure costs through custom financing and leasing.
Companies like Solv and Zip take online lending a bit higher by financing SMEs to make all checkout payments in easy installments. They should centralize expense management and integrate the BNPL choice into their payment ecosystem. As the financing is for underlying business exchanges, the lenders understand the danger profile and repayment capacity comprehensively. The SME financing model benefits businesses, partnering fintechs, and NBFCs by lowering expense, increasing advance disbursal volumes, and easing credit evaluation without significant danger suggestions.
Buy Now Pay Later is a payment choice to purchase without paying from your pocket. Generally, you join with an organization giving this office that makes all of your payments whenever you are making a purchase. However, once those particular companies pay on your behalf, you should repay the sum within a stipulated period. You can either pay the whole amount or some part of it or pay it using no expense EMIs. This is how BNPL works. We explained here all the business models of Buy Now Pay Later, competing. We hope you find it is useful and informative.
Aline Huseby is a Sales & Marketing Manager at ChargeAfter. She would like to share content on Finance Industry like Point of Sales financing, Buy now Pay later , consumer financing & Ecommerce financing for valuable reader.