In today’s day and age, it seems that everybody is strapped for cash. For the little things that you want or need, they have to put it on a credit card and then pay it off after they get their next paycheck. But what if they didn’t have to wait until the next day to spend some extra money? What if there was some way for them to buy now and pay later? That sounds like a great idea if you ask some people.
In order to help their clients gain access to the things they need, companies have come up with a new payment system called buy now pay later (BNPL). BNPL does exactly what it sounds like it would do: instead of paying for something right away, a borrower can pay for it at a later date. BNPL is a payment method that gives customers at online store and on E-Commerce websites the option to defer payments or to convert the transaction value into equated monthly installments (EMI). BNPL is particularly advantageous if you sell higher priced items like fitness equipment, furniture, or home appliances. Letting customers make installment payments can improve your E-Commerce conversion rate and customer satisfaction.
E-Commerce websites and online merchants can offer BNPL as a payment option to their customers by using BNPL service providers, who would be in charge of collecting the installments for them. BNPL automatically splits your customer’s total order amount into usually 3 equal payments. Your customer will pay the first payment at the point of purchase. The next two payments will be spread 30 days apart.
While the customer only pays the initial installment upfront, the BNPL provider covers the remainder of their purchase, so the merchant is made whole immediately. The merchant then processes and ships the order like any other. It produces a win-win for merchant and the customer because merchant get paid right away, but customer can pay over time.
BNPL is largely an unregulated business globally. In Malaysia, it does not come under the supervision of Bank Negara Malaysia as it falls under a factoring agreement. In a BNPL transaction, the BNPL provider “buys” the item for the consumer from the merchant at a discount — the margin is typically the provider’s cut — and the consumer then pays his/her installments to the BNPL provider rather than the merchant.
We believe BNPL payment method could help online merchants unleash the great potential of the digital economy, creating better engagement with the digital-savvy users.