\u201cBuy now, pay later\u201d is becoming common at large retailers like Target, Ikea and Macy\u2019s. More and more small-business owners are allowing their customers the ability to pay in installments, too.<\/p>\n\n\n\n
In fact, 55% of local businesses use buy now, pay later online and 5% offer it as an in-store payment option, according to a February survey from payments news site PYMNTS.com.<\/p>\n\n\n\n
If you\u2019re thinking about offering buy now, pay later at your small business, here\u2019s what you need to know.<\/p>\n\n\n\n
How buy now, pay later works<\/strong><\/p>\n\n\n\n Buy now, pay later<\/a> 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.<\/p>\n\n\n\n Buy now, pay later transactions cost merchants anywhere from 1.5% to 7% of a customer\u2019s total purchase amount, compared to 1% to 3% for most debit and credit cards, according to a 2021 briefing from the Federal Reserve Bank of Kansas City.<\/p>\n\n\n\n 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% fee for this service, it would pay you $380 upfront for this transaction and collect the $400 from the customer over time.<\/p>\n\n\n\n Why businesses offer buy now, pay later<\/strong><\/p>\n\n\n\n Buy now, pay later may cost more than other payment methods, but advocates for the service say it brings additional benefits.<\/p>\n\n\n\n \u201cWe usually ask our retail clients not to think of us as a payment option, but as a new customer acquisition channel,\u201d says David Sykes, head of Klarna North America.<\/p>\n\n\n\n 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.<\/p>\n\n\n\n \u201cIf you\u2019re a boutique, if you\u2019re artisanal, if you\u2019re a high-margin business, [serving younger customers] offers you the opportunity to have a longer-term value for that customer,\u201d says Julian Alcazar, a Federal Reserve Bank of Kansas City payments specialist.<\/p>\n\n\n\n Buy now, pay later may also lead to more customers increasing their spending. That\u2019s been the case for online sustainable clothing marketplace Wearwell.<\/p>\n\n\n\n Wearwell began accepting buy now, pay later payments after receiving a Small Business Impact Initiative grant from Klarna in 2021. Today, customers who use Klarna spend about 76% more than those who don\u2019t, according to the company\u2019s co-founder and CEO, Erin Houston.<\/p>\n\n\n\n \u201cIt just reduces the friction when it comes to someone adding one more thing to their cart, or choosing to splurge on that purchase that they really want,\u201d Houston says.<\/p>\n\n\n\n Buy now, pay later isn\u2019t just for retailers. Alcazar has seen a dentist and a mechanic accept installment payments in recent years.<\/p>\n\n\n\n \u201cWhen emergencies happen, they don\u2019t happen on payday,\u201d Alcazar says. Buy now, pay later can allow customers to get the service they need right away, which means the merchant can perform the service \u2014 and get paid for it \u2014 sooner.<\/p>\n\n\n\n What to watch out for<\/strong><\/p>\n\n\n\n In December, the Consumer Financial Protection Bureau launched a probe of five buy now, pay later providers, including Klarna. Officials cited concerns about how much debt customers are accumulating, how these companies use customer data and whether they adequately disclose their fees and dispute resolution processes.<\/p>\n\n\n\n Buy now, pay later providers will have to adapt to potential regulations, says Brett Worick, vice president of BNPL and point of sale lending at First National Bank of Omaha. And as this payment method gets more popular, he says buy now, pay later providers will need to learn to manage the risks of these kinds of loans, which may mean their offerings will change.<\/p>\n\n\n\n \u201cIt\u2019s almost like the risk is the stuff that we don\u2019t even know about yet,\u201d says Terri Bradford, a senior payments specialist at the Federal Reserve Bank of Kansas City.<\/p>\n\n\n\n How to choose a provider<\/strong><\/p>\n\n\n\n When shopping for a buy now, pay later provider, Bradford says \u201cit\u2019s not like there\u2019s a one-size-fits-all.\u201d<\/p>\n\n\n\n Buy now, pay later apps<\/a> won\u2019t be your only options \u2014 banks offer at-checkout financing, too. For example, First National Bank of Omaha rolled out its own buy now, pay later service last fall.<\/p>\n\n\n\n In addition to helping businesses offer at-checkout financing with payment terms of a few months, FNBO has point-of-sale loans<\/a> with terms as long as 10 years.<\/p>\n\n\n\n \u201cIt\u2019s really just a new way to lend money to customers in the more digital, instantaneous age,\u201d FNBO\u2019s Worick says.<\/p>\n\n\n\n Look for a buy now, pay later provider that integrates with your point-of-sale system<\/a>. If you have a brick-and-mortar location, note that some providers are now available in stores as well as online.<\/p>\n\n\n\n It\u2019s also important to choose a provider that you trust to represent your business, because shoppers don\u2019t always distinguish between a merchant and the third party they\u2019re using for payments.<\/p>\n\n\n\n \u201cDo the due diligence to figure out who that partner is, what their terms are, what they do for the consumer,\u201d Bradford says, \u201cbecause those are your customers.\u201d<\/p>\n\n\n\n More From NerdWallet<\/strong><\/p>\n\n\n\n Rosalie Murphy writes for NerdWallet. Email: rmurphy@nerdwallet.com.<\/p>\n\n\n\n The article What to Know Before Your Business Adds Buy Now, Pay Later originally appeared on NerdWallet.<\/p>\n","protected":false},"excerpt":{"rendered":"\u201cBuy now, pay later\u201d is becoming common at large retailers like Target, Ikea and Macy\u2019s. More and more small-business owners are allowing their customers the ability to pay in installments, too. In fact, 55% of local businesses use buy now, pay later online and 5% offer it as an in-store payment option, according to a […]","protected":false},"author":7,"featured_media":2603,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"no","_lmt_disable":"","attr_excerpt":["\u201cBuy now, pay later\u201d is becoming common at large retailers like Target, Ikea and Macy\u2019s. More and more small-business owners are allowing their customers the ability to pay in installments, too. In fact, 55% of local "],"footnotes":""},"categories":[40],"tags":[],"class_list":["post-2596","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"yoast_head":"\n