Why Has BNPL Gained Traction?
“…What is it about BNPL that has attracted such strong adoption from both consumers and merchants?
For consumers, the overriding benefit is convenience. With the growth of e-commerce, “just in time” financing, provided contextually at checkout, has undeniable appeal. While the amount of information a user must supply varies by product, all BNPL providers provide a streamlined, low-friction experience — often requiring no additional fields beyond a merchant’s standard checkout flow.
As a financing choice, “split pay” and some longer term POS financing choices hold appeal vs. traditional financing tools, like credit cards, as they are interest free. Financing that is provided at POS, when interest bearing, is preferred by some consumers as being more transparent, as it is close-ended and thus allows them to understand the full cost of credit upfront — something that’s not possible when using a typical credit card to finance a purchase.
For merchants, the appeal of BNPL is in boosting conversion rates and average order value (AOV). By providing a built-in financing option, often with no interest, BNPL as a payment option can help lower shoppers’ hesitation and thus reduce cart abandonment.
This benefit for merchants doesn’t come without a price; the fee the merchant pays the BNPL provider, the “merchant discount rate” (MDR), can often by 2-3x the merchant discount rate of a typical credit or debit card used at checkout. Merchants are banking on lower cart abandon rates and higher average order values to offset this increased transaction cost.”
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