What is Buy Now Pay Later (BNPL)?
With the current squeeze on the cost of living, interest rates going through the roof and our bills equaling the GDP of a small country, alternative ways to pay for shopping are getting more popular. Buy now pay later offers are delivered at checkout and give the shopper the chance to spread the cost of payment in a few different ways.
The payment terms vary depending on the provider but range from pay in 30 days to putting the item onto a longer term payment plan. BNPL schemes have made the purchase of larger ticket items much eaier than filling in the traditional forms you would get at somewhere like PC world or Curries. They work in the same way though and can often be confused as free money.
Giving customers easy ways to pay is essential to making your ecommerce store work, what you need to be careful of is leading people into debt. What can happen with BNPL is customers repeatedly use the service for multiple purchases, these repayments then add up over time and become a heavy wieght each month. Like most debt repayment if it looks too good to be true then avoid it.
Why have Buy Now Pay later on your Website
Buy Now Pay Later has become an expected payment offering in almost every eCommerce store. If you haven’t joined the rest of us and added it as an option then you will be saying goodbye to a lot of customers. It is on the same scale as not having a mobile responsive website, you will be annoying over half your visitors.
Like most trends, you should by now be taking this one up and you first decision is who to join. There are two key players in the Buy now pay later space in the UK. The most famous of which is Klarna and the second most popular is Clearpay. In this blog, we will discuss who we think is best and why.
You don’t have to be selling products that cost over £100 to offer BNPL. We get a lot of orders from Clearpay for £25 – 50s on our online pet shop. It means customers can spread even the cost of little things. Especially important as we head to Christmas.
What are the drawbacks of BNPL?
The first issue that comes to mind is the return aspect of BNPL. With Klarna you can buy something and pay for it 30 days later. That means customers can try something on and even wear it a few times and then return it. You won’t receive any money and end up with a returned item. It almost encourages this type of behavior.
Having Klarna on your website can have negative connotations because it was the first to market. It has suffered from bad press over the last few years, encouraging people into debt. This might get worse because Klarna has recently been added to Deliveroo payments. Meaning more people will be spending on credit just for takeaway. In my world takeaway is a privilege that can be done when it can be afforded.
Klarna is the established brand when it comes to Buy Now Pay Later. Founded in 2005 in Sweden, the aim of the company was to make it easier to shop online. It is the leading global payment provider with 150 million active users across 45 countries.
Klarna offers a complete checkout solution and can be installed on any content management system including Shopify and WordPress. It is easy to install and the heavy lifting is done by the payment provider as opposed to your web developer.
Similar to Shop App the customers information is pre-filled by the app when they return to your store, saving everyone time.
Payment solutions offered to customers include:
- Pay in 30 days
- 3 Installments
- Financing over the longer term
This makes it easy for different customers to choose a solution that suits them. With Klarna you can build a finance programme that can last for a couple of years.
The 3 installment offering is interest-free and often the most popular. Klarna is used by thousands of retailers including:
Deliveroo, Zavvi, Hotel Chocolate, JOI, ZAP, H & M, Rugby Stuff, and more. You can find the list of retailers here…
You can also find some excellent case Studies about Klarna’s Business Success here…
How Much does Klarna cost the Merchant?
Nothing is free and buy now pay later is a great way for banks to make money. They provide your customers with an easy way to pay but will also charge you. There is no reference to how much merchants pay on the website.
Klarna charge 2.95% per purchase plus a fixed fee of 0.20p per transaction.
Clearpay is an offshoot of Aussie payment provider Afterpay. Founded in 2014, the servie differs from Klarna in that it is dedicated to helping customers pay for things who have a record of paying on time. Unlike Klarna you do get charged a late payment fee if you miss a payment. This is only £6 but can add up. It does however encourage on time payment by customers.
How it works?
Customers can sign up to a Clearpay account and have access to purchase options including 4 installments. Simply put, your purchase is broken down into 4 interest-free installments over 6 weeks.
The app is fantastic to use and allows you to tap and pay in physical stores too. You only pay the first installment and take away the goods, after that you follow the repayment plan.
There are lots o assets to help you understand how Clearpay works and how to use it with your business. This PDF from Clearpay tells you all you need to know in 1 page.
How much does Clearpay Cost the Merchant?
Merchants pay a fixed fee on all purchases where the customer uses Clearpay. This is 6% on all purchases plus a fixed fee of 0.30p on top. Don’t forget to calculate all of the fees you are paying when selling because you still need to make a profit.
Clearpay the Winner for eCommerce Stores
Why do we love Clearpay so much? It is not just that it is the new kid on the block, Clearpay from a merchant perspective is way ahead of Klarna. It is easy to use, the customer service is incredible and your customers don;t tend to get into debt with it. They do everything they can to measure the ability of customers to pay and stop them from using the service the minute they are late paying.
The biggest bonus is the Clearpay Shop. This is Clearpays own marketplace where every merchant features. We get a lot of traffic and tonnes of sales from Clearpay. In fact, it has become a sales channel in its own right. You also don’t have to pay to advertise on it, it comes as part fo the service. So whatever fees you pay to Clearpay you make back on the extra sales. Look at the analytics results above. Clearpay is the second largest referer of traffic to our website in terms of revenue.
Here is a list of other useful blogs on the subject of Klarna vs Clearpay.