Buy now pay later, or BNPL, services like those offered at Gratify have become all the rage across online merchants. These payment options give customers the option to buy a product or service now and pay for it later with regular installment payments.
There are tons of benefits to taking advantage of these types of services. After all, these lending options offer high approval rates, resulting in fewer abandoned carts and higher revenues for the companies that use them – or at least that’s what seems to be the case at first glance.
But how does BNPL work? And is this a viable option for your small business? You might be surprised at the answer.
Buy Now Pay Later companies typically make money in two ways:
Transaction Commission: Just like a credit card transaction, BNPL providers take a percentage of the sale price. The BNPL commission is applied to the sale amount, and you will receive your sales net of all BNPL fees.
Traditional BNPL companies are data aggregation companies. That means when you give your customers these options, the BNPL collects their data and uses it to sell them other products and services, generating a commission for their referrals.
One of the biggest problems with BNPL services is that, with most options, once your customer uses a BNPL on your site, that customer’s data is no longer yours. It is now owned by the BNPL provider.
Of course, you have access to your customer’s data in the BNPL portal, but so does the BNPL company. And this is how they create referral revenue (see point 2 above).
That’s why it’s crucial to use a new BNPL like Gratify Pay that doesn’t steal your customer’s data.
The referral and data portion of the BNPL earnings ecosystem is a big issue. The fact of the matter is that these services are sold to small businesses and even large corporations as a way to increase conversion rates.
After all, a potential customer is far more likely to buy if they can pay for items over time. That’s why thousands of businesses offer BNPL.
The problem is what happens after the customer buys. There are three major issues with traditional buy now pay later options for small businesses.
You’ve worked hard to win your customers. So, there’s a big problem when a company you consider a partner starts to sell your customers products from large highly-competitive brands, brands you may not be able to compete with.
Think of it this way:
Could you imagine traditional credit card companies, such as Visa, taking your customers’ data every time they swipe, and giving it to your competitors so they can sell to your customers? Although that sounds crazy when it comes to more traditional payment methods, it’s precisely how traditional BNPL providers do it, and it could really cut into your bottom line in the long run. Not to mention annoying your customers.
Customer experience, or CX, is your business's bread and butter. No matter how good your product or service is, if your customer doesn’t have a positive experience with you and your team, they will not likely come back for more.
The average person hates spam and other intrusive forms of advertising – the same types of advertising traditional BNPL companies use to sell your customers other brands.
Since your customer knows where those emails and other messages are coming from, they end up relating them to your brand, reducing the overall customer experience and resulting in a loss of trust among your audience.
You must make the most out of your customer acquisition cost. That means keeping your customer churn rates low. After all, if you can keep customers coming back time and time again, it shows that you’re doing the right thing by them.
Unfortunately, if you work with most BNPL services, you’ll likely notice a significant increase in customer churn rates for two reasons:
Your Customers Are Being Fed Other Options. It’s hard to stand above your competition when your payment processing solution is consistently hand-feeding your competition’s services to your customers.
Your Customers Are Getting Annoying Ads. Your customers relate the annoying advertisements to your brand, so even if they don’t act on the ads, you may lose them due to a poor user experience.
The good news is that there are two things you can do to increase conversions with BNPL services without jeopardizing your customer base.
The first and most important thing you can do to keep your customers happy while using a BNPL service is to simply offer services the right way. What’s that mean?
It means you should make sure you are protecting your customer base whenever you use a BNPL.
This allows you to take advantage of the benefits of BNPL without having to worry about annoying your customers and bombarding them with ads from competitors. Moreover, when you use a BNPL that doesn’t advertise to your customers, you can confidently tell them that you don’t share their data. This becomes a sales tool in and of itself.
After all, can you think of any time you would like to see a message like, “We share your data with advertisers,” at checkout? On the other hand, when you see a message like, “Your privacy is important to us,” how do you feel?
Putting yourself in your customer’s shoes shows that it’s best not to share data in the first place.
You may already be using a BNPL and have a big issue with the section above. Many of these services don’t let you opt out of data sharing. That doesn’t mean BNPL is generally a bad idea; it just means you haven’t found the right service provider to work with.
Consider reaching out to Gratify Pay.
Gratify Pay takes your business and your customers seriously, giving all merchants and retailers on its platform the option to take advantage of BNPL services without sharing their customer’s data for marketing purposes.
Customer retention is crucial to any business. After all, the more you keep your customers with you, the more opportunities you have to earn revenue from those customers, increasing your ROI on your customer acquisition cost.
For example, say you own an online apparel store, and your average order is $100, your average customer acquisition cost is $20, and your average cost of goods sold is $50. If your customer only shops once, you’ve earned a $30 profit, which is a relatively low margin.
Now, say that customer comes back a second time. Since you’ve already acquired the customer, the second order only costs you $50, bringing the total profit from the customer to $50, a far better margin at 50%. Every time that customer returns to your business, your revenue, return on investment, and ultimately bottom-line customer value improves.
So, how do you keep customers coming back?
The simple fact is that buy now pay later is a meaningful tool for businesses when used properly. After all, these options significantly reduce cart abandonment rates and can create a better overall experience for your customers.
The key is using the tool properly and ensuring that when you use it, you’re not giving up your customer data. You should only work with buy now pay later services that allow you the option to opt-out of data sharing. Moreover, since you have the option, you should opt out to ensure that future sales come to your brand, rather than the brands your BNPL provider’s trying to sell.
Let’s face it; nobody likes ads. Advertising can quickly become overwhelming and annoying if they interrupt your favorite television show, music on the radio, streaming video, online content, or fill your inbox.
One of the best ways to ensure your customers have a great shopping experience is to make sure they’re not bombarded with annoying ads. Steps you can take to avoid this issue include:
Choose BNPL Services Wisely. Only work with BNPL services that allow you to opt- out of data sharing and be sure to opt-out before putting the payment option on your website.
Avoid Website Ads. Ads take away from your in-house sales, so instead of banking a few dollars here and there on clicks, show your featured items and forego the ads.
Assess Your Third-Party Services. Your BNPL service may not be the only company that tries to take your business by advertising your competitors. Assess all your third-party services and only work with options that allow you to opt out of data sharing.
Loyalty programs are a dime a dozen these days. Just about every major brand has them, but small businesses often fail to incorporate these sales tools into their processes.
Remember that your loyal customers increase your ROI because you don’t have to spend money to acquire them repeatedly. Share some of the increase in returns they provide and encourage them to keep returning with a loyalty program.
You might be surprised how a small offer can increase customer engagement.
Socialization is one of the best customer retention strategies available. Your customers want to know you're interested in them personally. One simple question shows them that you care, and the answer can give you valuable insights into what you can be doing better. That question is:
“Will we see you again?”
If things are going well and you’ve created a compelling user experience, your customers will gladly say “yes.” On the other hand, if something is causing pain in the user experience, you’ll get a few honest customers that say “no.”
When a customer tells you they won't be back. Ask them why, show genuine interest, and take note of their response. Then think of actions you can take to make sure no other customer experiences the reason that customer said they wouldn't be coming back. It's nice to know everything you're doing right, but it's more important to learn everything you're doing wrong so you can fix it.
As you know, customer loyalty is important, but it’s also important that your customers are loyal to you, not to the payment method you’ve introduced them to. Take the time occasionally to think about actions you can take to keep your customers loyal to your brand, and you’ll gain the opportunity to grow your revenue along the way.
BNPL is becoming an effective conversion and marketing strategy, especially when you want to attract digital customers. However, it’s crucial that when you take advantage of these services, you’re aware of how they operate, and you take steps to protect your customers from annoying ads and your brand from undue competition.
One of the best ways to do so is to work with Gratify Pay. The only BNPL company gives you the best of both worlds – the ability to offer a compelling payment option and the ability to maintain control of your customers.