“Buy now, pay later” is becoming common at large retailers like Target, Ikea and Macy’s. More and more small-business owners are allowing their customers the ability to pay in installments, too.
In fact, 55 percent of local businesses use buy now, pay later online and 5 percent offer it as an in-store payment option, according to a February survey from payments news site PYMNTS.com.
If you’re thinking about offering buy now, pay later at your small business, here’s what you need to know.
Buy now, pay later involves three parties: the customer, the merchant and the buy now, pay later provider. When a customer makes a purchase, the provider pays the merchant in full, minus fees. Then the customer pays the provider back in installments.
For example, say your customer splits a $400 purchase into four payments of $100 each. If your buy now, pay later provider charges a 5 percent fee for this service, it would pay you $380 upfront for this transaction and collect the $400 from the customer over time.
Buy now, pay later may cost more than other payment methods, but advocates for the service say it brings additional benefits.
“We usually ask our retail clients not to think of us as a payment option, but as a new customer acquisition channel,” said David Sykes, head of Klarna North America.
According to the PYMNTS.com survey, a higher percentage of millennial and Generation Z customers are interested in using buy now, pay later compared to respondents of other generations, particularly at luxury and specialty stores.
“If you’re a boutique, if you’re artisanal, if you’re a high-margin business, (serving younger customers) offers you the opportunity to have a longer-term value for that customer,” said Julian Alcazar, a Federal Reserve Bank of Kansas City payments specialist.
Buy now, pay later isn’t just for retailers. Alcazar has seen a dentist and a mechanic accept installment payments in recent years.
“When emergencies happen, they don’t happen on payday,” Alcazar said. Buy now, pay later can allow customers to get the service they need right away, which means the merchant can perform the service – and get paid for it – sooner.
