"Buy now, pay later" - opportunities and risks for online stores

People who shop online want to be able to pay flexibly. This not only includes a wide selection of payment methods, but also the timing of the transaction. More and more customers are demanding the "buy now, pay later" model: buy now, pay later. We clarify the most important questions.

An example of "buy now, pay later": shoes are ordered, tried on at home and then only the pair that really fits is paid for.

This payment model has actually been around for a long time: before the heyday of online retail, we selected our goods in the catalog, ordered what we wanted to take home and only paid for the items when the goods arrived in the post. Buy now, pay later was the motto then as it is today. However, there is much more to the term "buy now, pay later", or BNPL for short, than just buying on account.

If a customer selects the BNPL payment option, a complex and fully automated process is started in the background. In order for someone to be able to pay for their goods later, their creditworthiness must first be checked. Within seconds, it is clarified whether the customer is eligible to pay or not. Another difference to conventional purchase on account is that BNPL often also offers payment by installments: A new LED widescreen TV for just CHF 100 per month? Practical!

What advantages does Buy now, pay later offer?

Customers benefit from "Buy now, pay later" in various ways: for example, they can order several versions of a shoe type, try them on and then only pay for the pair that fits. They simply send the rest back. Or they can treat themselves to a product in the high-price segment, which cannot be financed at the moment, but can be paid for in installments. Buying now and paying later therefore not only means more flexibility, but also more freedom for the buyer.

For online retailers, the advantages of BNPL lie particularly in the area of customer loyalty. The trial-and-error aspect lowers customers' inhibitions, they are more likely to complete the purchase process and feel more comfortable checking out. If an online store gives its customers confidence, this is demonstrably reciprocated. Various market studies have shown that the BNPL option not only increases the volume of the shopping cart, but also the number of purchases.

How is buy now, pay later developing?

In Asia and America, "buy now, pay later" is experiencing impressive growth and demand is also increasing in Europe. Here in Switzerland, however, there is still plenty of room for improvement: In the 2023 online retailer survey conducted by the ZHAW Institute of Marketing, only 11% of the 598 participating online retailers stated that they offer BNPL to their customers. This is a decrease compared to the previous year, when 17% still had such a solution integrated into their store.

According to the survey, it is primarily online stores with an average-sized shopping cart that offer BNPL. We are talking about a volume of CHF 500 or more. Accordingly, installment and invoice purchases seem to make particular sense if an online store mainly offers high-priced goods, such as furniture, electronic or kitchen appliances, travel or branded clothing.

It is also striking that if a store offers BNPL, the payment model is becoming increasingly important for its customers. 10% of online retailers with a BNPL model stated that installment payments are increasing significantly. At 25 percent, there was at least slight growth. For 29% of stores with BNPL, the proportion of installment payments has remained roughly the same and for only 6% has the payment model become less important. This shows that "buy now, pay later" is also becoming increasingly popular in Switzerland.

Who bears the resulting risk?

"Buy now, pay later" not only offers an online store and its customers various advantages, but is also associated with certain risks. For example, what happens if the goods are shipped but never paid for? And what money is used to close the gap caused by the delay in payment?

If a customer chooses the BNPL payment option, they legally acquire ownership of the purchased product immediately - regardless of whether they pay the money directly, later or in installments. This is only possible thanks to a third-party provider who pre-finances the transaction, so to speak, and transfers the amount to the online store on behalf of the customer. In a sense, the BNPL service provider grants the end consumer a loan. After all, it is this company that collects the money from the buyer and is therefore responsible for ensuring that the amount is actually transferred.

Payment reminders, reminders, debt collection threats - all these measures are taken by the third-party provider in an emergency. In return, they normally charge a fixed fee on every purchase made via "Buy now, pay later". This means that there is no financial risk for the online store itself.

Which BNPL providers are there in Switzerland?

In addition to several large, international providers such as Klarna or the MF Group, there are also various companies from Switzerland that specialize in "buy now, pay later". Two of them are integrated into the Payrexx solution so that you as a merchant can jump on the BNPL bandwagon quickly and easily.

HeidiPay, a simple card-based payment solution that focuses on installment payments and enables goods to be paid for within 24 months, has been active on the Swiss market since 2020. While customers can pay over time, the merchant is paid directly by HeidiPay. HeidiPay will put together a different offer depending on the online store, but Payrexx will take care of the initial contact for you: Simply select HeidiPay as your payment provider and HeidiPay will get in touch with you!

The online retailer survey 2023 conducted by the ZHAW Institute of Marketing shows that only a few online retailers use BNPL. The most popular provider is Klarna.

TWINT, the increasingly popular payment system in Switzerland, has also recently started offering a "buy now, pay later" solution. With " TWINT pay later", you offer your customers the option of paying for their purchases up to 30 days later. Here, too, TWINT assumes the initial payment and the potential risk. As a Payrexx customer, you can request the activation of this BNPL system using a form - we will then set it up for you with TWINT so that activation is quick and easy.

Thanks to Payrexx, entering the fast-growing world of BNPL payments is child's play. In order not to diminish the trust of your customers, you can also process all payment steps under your own brand identity. Your users feel secure in their familiar environment and you as a merchant benefit from a trustworthy payment service provider (PSP) that ensures that you can offer an additional payment method - without any risk, but with maximum flexibility.