What Is Buy Now, Pay Later & Should Luxury Brands Use It?
If you haven’t heard of Buy Now, Pay Later services, chances are you’ll be seeing them everywhere very soon. Several luxury brands, including Gucci, Balenciaga, Bvlgari, Givenchy, Bottega Veneta and others, have already embraced the trend which is predicted to increase further in 2024. So, how can you enjoy the benefits of Buy Now, Pay Later? And is it the right approach for your luxury brand?
Read on to learn what Buy Now, Pay Later is and the benefits these services can have for luxury brands.
What Is Buy Now, Pay Later?
Buy Now, Pay Later (or BNPL) is an alternative payment that allows customers to instantly make a purchase but pay for it over time. Usually, BNPL services charge no interest. For example, a consumer making a $5000 purchase could receive the product instantly, but pay for it in 10 installments of $500.
There are multiple BNPL services, like Afterpay, Klarna, and Zip, which are used by a variety of luxury retailers—including Gucci and Givenchy, to name but a few— to help increase conversion rates and reach new customers. In 2022, 5% of all online purchases in North America were paid for using Buy Now, Pay Later services, a figure which is expected to rise to 7% by 2026. The same study predicts there will be over 100 million BNPL users in the US three years from now.
How Does Buy Now Pay Later Work?
BNPL is a payment option provided to customers at checkout, alongside the traditional payment methods: credit card, PayPal, etc. When users select the BNPL option, they’re taken to the third-party site and complete the purchase there. They must agree to the terms of the repayment plan, which is usually in bi-weekly or monthly installments. The business is paid in full immediately, though the BNPL provider takes a small cut of the sale. Customers repay the amount of the purchase directly to the BNPL provider, with zero interest or additional fees so long as they pay on time.
Buy Now, Pay Later services generate their revenue by charging small fees to the businesses who use them, and through late fees for customers who miss payments. Businesses that use BNPL services typically pay an initial setup fee and a small fixed fee for each transaction.
Should My Luxury Brand Offer Buy Now, Pay Later?
From a business standpoint, you may be wondering what the benefits of using BNPL services are. Is it worth it? Or do you risk impacting your brand’s ‘luxury’ status? Let’s take a look at what it can bring to your company, so you can weigh the pros and cons.
INCREASES YOUR BRAND EQUITY
Having a Buy Now, Pay Later option is the perfect way to convert aspirational customers who might not otherwise be able to afford your products. This helps to increase your brand equity, without having to erode its prestige by offering promotions or discounts.
BNPL services are particularly significant for Gen Z, who are their biggest users. According to a study by Forbes, the growth of BNPL among Gen Z has grown 600% since 2019, while the rate for Millennials has more than tripled. This massive increase over such a short time shows the true value of these services.
Offering BNPL will also help to increase conversion rates. Customers are far more likely to make large purchases if they can pay for them over time. A payment of $50 every month is a lot easier to stomach than one $200 payment.
INCREASES CONVERSION FOR THOUGHTFUL SHOPPERS
Shoppers are increasingly researching products online before buying. A recent study found that up to 81% of people take the time to read reviews and compare prices before making major purchases.
Today’s buyer also takes as many as eight touchpoints to convert to a sale. However, removing financial pressures can help these consumers convert faster. The data speaks for itself: Businesses that accept Buy Now, Pay Later services on Stripe have seen a 27% incremental uplift in sales volume.
INCREASES BUYING POWER OF SPONTANEOUS SHOPPERS
Not all shoppers are thoughtful and well-researched. Some shoppers make spontaneous purchases, especially if they’re already buying something else from a brand.
Regular luxury shoppers may increase their order value if they can use a BNPL service and don't need to pay upfront, as the barrier to making larger purchases is removed. When shopping for lower-priced goods, customers may be likely to buy additional items if they can pay for them in installments.
OFFERS A CONVENIENT CUSTOMER EXPERIENCE
A BNPL service gives customers a faster and more convenient way to access financing. After signing up with their chosen provider, they can check out with ease in just a few clicks.
Customers are more than willing to interact with businesses that offer safe, simple, and speedy transactions. Experts estimate that brands that offer BNPL options increase their likelihood of a sale by 20% to 30% and boost the average ticket size up to 50%.
Buy Now Pay Later Providers
If you’ve decided that Buy Now, Pay Later would benefit your luxury brand, know that there are many BNPL providers out there to choose from. Some things to consider when researching which best fits your needs:
Repayment terms - if your business typically has a high order value, it’s worth working with BNPL providers that offer repayments over a longer period.
Credit limits - some BNPL providers have minimum and maximum credit limits. Evaluate your average order value and make sure to choose one that offers enough credit for customers to buy your items.
Customer location - do you have customers across the globe or just in one country? Maybe it’s best to offer more than one BNPL provider to make sure you’re catering to shoppers from Australia to Germany and everywhere in between.
The most common BNPL providers to consider include:
Affirm - available in Canada and the USA, with monthly repayments up to 36 months. The maximum transaction limit is $30,000.
Afterpay/Clearpay - available in Australia, Canada, New Zealand, UK, and the US. Customers can repay in four installments, while US customers can also make monthly payments for up to 12 months. Maximums range from $1k to $4k based on location.
Klarna - the most-used BNPL service, it’s available in more than a dozen countries. They offer multiple repayment options, for up to 36 months, with a maximum of $5000.
If a luxury brand chooses to expand its offering to include Buy Now, Pay Later options, Block & Tam can help market this offering in the right way to the right audience. Get in touch today.
*This post was updated on 02/05/2024
