Are buy now pay later services too risky for businesses?

7 February, 2019

8 mins read

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Buy now pay later (BNPL) services, such as Zip Pay, Zip Money, Afterpay and OpenPay, let customers instantly receive a product or service, but pay it off over time. While it’s been proven to increase sales, the thought of fees and people not paying back the owed amount can be concerning to business owners. But should they be worried? Maybe not as much as you think.

In this article, you’ll discover:

  • What happens if someone defaults on BNPL payments.
  • How Zip, Afterpay, OpenPay and other BNPL services make money from businesses.
  • Possible risks businesses may face by offer buy now pay later.
  • How to maximise your sales with the payment method.

How do buy now pay later services work for retailers?

According to Zip (Zip Pay and Zip Money), users of BNPL services receive up to:

  • 30% more sales volume.
  • 70% more order value.
  • 80% higher repurchase rate.

While these numbers are great for boosting profits, they have business owners worried about people racking up debt, and not being able to pay back their purchases.

Woman shopping

Recent reports state Aussies have totalled up to $1 billion of debt using this seemingly innocent payment method. When people are adding items to their cart knowing they can pay off their purchases, they’re less likely to focus on the total. They’ll divide it by how many payments they can pay by using the BNPL option. So, a $400 invoice turns into four payments of $100. Sounds much more manageable doesn’t it? But they’re still responsible for paying it back, like they would a credit card or loan.

To use buy now pay later as a payment method either online or in-store, the customer has to sign up to the service provider and be approved for a spending amount. Once they complete a transaction, Afterpay, Zip Pay/Money or whoever’s services you use will pay you out.

If someone doesn’t pay back the ‘borrowed’ amount, the business won’t ever know or need to worry. People agree when they sign up to the service that the BNPL will pursue debt collection for non-payment and possibly have a default left on their record.

Do buy now pay Later services have retailer fees?

Every few months it seems like a new BNPL option appears on the market. We’ve done some research into the most recent fees for some of the top providers in Australia.

AfterPay: 30 cent per transaction fee, as well as a 4–6% per transaction commission fee, as per your agreement.

Zip Money & Zip Pay: 15 cent per transaction fee, as well as a 2–4% per transaction commission fee, as per your agreement.

OpenPay: Will depend on your agreement, but may include transaction fees and commissions. Typically any fees are based on the purchase total.

Note: These prices are current as at 28th November, 2018 (source: Finder AU).

Wallet in back pocket with money

What risks are involved for businesses using buy now pay later services?

Buy now pay later schemes are not currently regulated under consumer credit protection. This is currently under review. But what does this mean?

The Australian Securities and Investments Commission (ASIC) is currently looking into the credit checks performed by BNPL services, the debt problem surrounding the payment method and fees added to goods by retailers. Some businesses have been adding fees to BNPL transactions to cover their own fees. However, where there is no control, there will almost always be exploitation; in this case, meaning overcharging. If this payment method is regulated, it could mean stricter rules and possible absorption of fees by businesses.

Currently the risk involved with offering Zip Pay, Zip Money, Afterpay or other options is quite low. The service provider takes over the payments, so you don’t have to worry about non-payment if you give invoices. And while BNPL is questionable for consumer money management, it can increase your own profits.

How to use Buy Now Pay Later to boost your sales.

So, how do you use BNPL to boost your profits? Well, aside from being listed on on the providers directory, you should advertise your partnership with them elsewhere. Here is where you should mention your new payment method:

  • Your Localsearch business profile, where it’s displayed on the profile itself and when people filter in the main list view for BNPL users.
  • Add the logo to your website where people can easily see it.
  • Post about it on your customer-focused social media platforms.

If you haven’t claimed your Localsearch business profile yet, we have a full guide on its benefits for growing your business and how to get set up. Read it here.

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