5 Deadly Mistakes to Avoid When Choosing a BNPL Solution

by Nici Pillemer


June 21, 2022


Buy now, pay later (BNPL) is a consumer POS financing solution that gives customers the ability to receive their purchase right away, while paying it off over time. BNPL has become a popular solution that enables merchants to sell more products, lenders to reach new customers, and gives consumers the option to increase their purchasing power.

Buy Now, Pay Later is here to stay

There’s no question that Buy Now, Pay Later (BNPL) is a must-have for any merchant, both for e-commerce sellers and traditional retailers alike. The facts speak for themselves – 55.8% of consumers used BNPL in 2021. The industry is on such a growth trajectory that is predicted to reach $1 trillion in annual gross transaction value by 2025.

Businesses that have successfully rolled out BNPL platforms have benefited from an over 30% increase in sales and an estimated 70% increase in average order value (AOV).

So while offering a BNPL finance solution is a no-brainer for any e-commerce merchant that wants to sell more products, increase average order value, and reduce cart abandonment rates, a fundamental dilemma remains: which is the right BNPL solution to choose?

Not all BNPL solutions are created equal

When it comes to choosing the right BNPL solution, things start to get complicated as there are a few different types of BNPL solutions and vendors available:

1. D2C out-the-box vs white-labeled BNPL solution

An out-the-box solution gives merchants a standard BNPL offering, without catering to the exact needs and characteristics of the merchants. It’s a one-size-fits-all approach, which doesn’t necessarily have the optimal effect on profit margins and customer loyalty.

On the other hand, a white-labeled, lender-agnostic BNPL solution is customized to meet each merchant’s specific needs, account for their business structure, and optimize their customer experience.

2. Bank point-of-sale financing vs alternative lending

Typically BNPL solutions were financed by alternative lenders and banks got left behind. These banks have had to play catch-up in recent years, sometimes with bureaucracy standing in the way of progression.

But through partnerships with fintechs, banking institutions are now in a unique position to lead the way. Fintech flexibility and technological capability combined with banking fiscal power and unparalleled transaction fees has become a force to be reckoned with in the BNPL world.

Choosing the right BNPL solution is not a simple process and requires careful consideration of many moving parts. It’s not uncommon for merchants to make mistakes when selecting a BNPL solution, mistakes that can put profits and customer retention at risk. Mistakes that, if you’re well-informed, are avoidable.

3. Multi-lender vs single-lender BNPL

More and more merchants are seeking out multi-lender BNPL solutions to whet their appetites for higher customer acceptance rates.

Unlike with a single-lender solution, the multi-lender with waterfall BNPL approach automatically passes the consumer’s application from tier-1 lender to secondary lender to maximize approvals.

5 avoidable BNPL mistakes merchants make

1. Underestimating transaction fees

Buy Now Pay Later can be either zero-interest to the consumer, or interest-bearing for longer term loans. For the interest-free options, the cost is absorbed by the merchant in the form of transaction fees.

While the direct-to-consumer BNPL provider fee of typically 3-6% per transaction may not seem like much on paper, it can add up to a substantial amount that will eat into profit margins. Luckily, there are bank BNPL options with transaction fees as low as 1-3%, which translates into considerable savings for the retailer.

2. Not taking acceptance rates into account

The last thing a merchant wants is disgruntled customers that have been rejected for BNPL financing at the point-of-sale. By not doing their homework, many merchants have been bitten by BNPL solutions with low acceptance rates. This situation is avoidable if a merchant chooses a multi-lender with waterfall BNPL solution.

3. Losing out on customer data ownership

The standard BNPL vendor co-owns the merchant’s customer data, thereby flooding the customer with third-party marketing materials. By not holding onto their customer data, merchants risk getting lost in the ensuing flood. Co-ownership of customer data does not have to be a prerequisite of BNPL and there are white-labeled options available without it.

4. Creating brand confusion

Let’s say a customer visits an online store. That customer then selects the BNPL option at checkout. The customer is now taken diverted to the BNPL provider’s user journey. This lack of consistent end-to-end customer experience can have a negative effect on customer retention and loyalty.

5. Not being consistent across all retail channels

Imagine a merchant with both an online store and a physical storefront. A customer shops online using BNPL but decides to later visit the store, expecting the same payment flexibility. That’s not the case and the customer leaves frustrated.

The solution: Merchants that offer BNPL in one channel, need to consistently offer the exact same payment option in all other channels in all markets in order to avoid such a scenario.

How not to succumb to common BNPL mistakes

To make sure you don’t repeat the mistakes of other merchants, find out everything you need to consider when choosing your BNPL vendor in this free whitepaper Behind Closed Doors of BNPL: What you need to know before choosing a BNPL solution.

BNPL whitepaper for merchants

Disclaimer: The information in this article is for informational purposes only, and should not be construed or relied upon as legal advice on any subject matter. The author is not responsible for any consequences whatsoever arising from the use of such information.

Jifiti is transforming point-of-sale financing with cutting-edge technology, data and BNPL solutions.

Our white-labeled Buy Now Pay Later bridging the gap between retailers, lenders, and consumers.