What is Buy Now Pay Later

Apr 15, 2020

The term, “buy now, pay later” is making a comeback across all industries! Specifically now with COVID. A while back, the term was commonly referenced by merchants and consumers when utilizing the layaway model as a form of payment. Layaways used to be the most popular consumer financing model and is still used by some retailers today.  Customers typically used the layaway model for household appliances or luxury items. It is a purchasing method where the customer places a deposit on an item for pick up at a later time. 

Since the emergence of the layaway model, technology providers have been key to improving point of sale financing models and the overall checkout experience for consumers and merchants. Point of sale financing, also known as POS Financing, checkout financing, consumer financing, micro-financing, and point of sale lending or “buy now pay later” is an immediate and convenient credit granting process for consumers that is seamlessly embedded in the checkout process. Instead of racking up a credit card bill, consumers are able to receive financing at the point of purchase in order to assist them in buying goods or services. Point of sale financing is a line of credit that is not associated with a consumer’s credit card. Consumers may have the option to finance their goods or services between a period of 6 – 48 months all while receiving 0% APR. The best part? Shoppers are able to receive and utilize their goods or services immediately, without any hold-ups!

You may be asking yourself, well why not just use a credit card? Credit cards are great however there are typically high-interest rates associated with them. Interest rates vary from 18 – 29.9% and there is no set pay backdate. Apart from high-interest rates, did you know that once consumers pass the 30-40% utilization mark of their credit cards, the credit score starts to decline because bureaus see the individual is reliant on credit instead of hard cash or debit? Consumers have been favoring their debit cards, the Federal Reserve Bank of New York has reported credit card usage is at an all-time low. Did you know 63% of Millennials and Generation Zers do not own a single credit card and they will be making up more than half of the consumer landscape by the mid-2020s? Think about how the declining use of credit cards will affect your business in the near future. From saving to spending, and financial behaviors in between, spending attitudes have changed among consumers. 

Short-term installment loans have been on the rise within the past 3 – 5 years. Consumers are demanding choice and flexibility in their payments. Point of sale financing allows merchants to sell more because consumers no longer have to solely rely on the use of their credit cards, rather they are able to receive more affordable, personalized financing options on the spot, live at checkout. Point of sale financing is beneficial for mid and big-ticket items alike. The intent is to offer consumers more accessibility to purchase the products they desire, wherever they shop. 

Think about it, it is much more practical to make a purchase of $2,196 for the new set of heavy-duty wheels that you’ve always wanted for your Land Rover over a period of 24 months with 0% APR instead of having the large amount be charged on your credit card. 

Although young adults are primary targets of point of sale financing, older demographics like Gen X and Baby Boomers are just as attracted to the idea of short-terms installment loans. Seventy-four percent of all US adult consumers think installment loans take away the stress of making large purchases upfront. Consumers are no longer making impulse purchases or stretching themselves financially thin, all consumers are more cognizant of their purchases. 

When merchants offer the “buy now, pay later” option to their consumers, they benefit from higher conversion rates while consumers receive accommodating terms to pay back their purchase without the stress of making a hefty purchase upfront. In fact, merchants who offer point of sale financing from ChargeAfter, a multi-lender platform, enjoyed seeing a 45% increase in sales. When merchants meet consumers halfway, it enables a stronger relationship. POS financing is a smart payment option to offer today’s cognizant and responsible shoppers. Don’t forget that point of sale financing can be offered to consumers in-store, online or over the phone. It is a perfect solution for all parties involved, maximize every sale opportunity by offering your customers the option to finance their purchases at checkout.

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About the author
Chris Lloyd
“ChargeAfter is amongst our top rung of partnerships, and they enable us to deliver consistent. The conversion uplifts ChargeAfter creates helps drive strong value for DXL Group and our customers.”