Business Tips

Merchants: Choose Your Own Buy Now Pay Later (BNPL) Adventure

Last updated January 2022

“Choose Your Own Adventure” stories allow readers of a story to decide which way they want to go to advance to the next stage. In a world where Buy Now Pay Later (BNPL) options have become the hottest trend in consumer payments, merchants can also make choices as they create their own story about what they offer to shoppers and how they succeed as a business. 

Follow along in our guide to “Choose Your Own Adventure” so that you can do what is best for your long-term success.

Chapter 1: What Shoppers Want Now

Over the past few months, BNPL options have built up a huge amount of steam. All the big names in the business have begun to make in-roads into e-commerce storefronts: Affirm, AfterPay, Klarna, QuadPay, Splitit, and more. Other payment solutions such as traditional credit cards and PayPal also offer shoppers various ways to split their purchases into multiple payments.

At Splitit, we love seeing so much energy and activity in our industry. We also empathize with merchants. It’s hard having so many choices, especially when they all have different advantages for your business and distinct appeal to your shoppers. The trend among e-commerce leaders lately has been to offer more than one BNPL option to shoppers. Merchants now may have to make a tough choice more than once!

As a merchant, you’re the hero of this story. What do you choose to do?

I want to put my shoppers’ needs first.
I just want to do what’s easiest for my business.

I want to put my shoppers’ needs first.

Of course you know — putting the shopper first is the number one rule of e-commerce. The key to engaging shoppers successfully is making sure you understand their needs. Needs translate into preferences and behaviors. That’s the next step in your adventure. Continue.

Chapter 2: Delivering What Shoppers Need

In this part of the story, remember, we are in the land of needs, preferences, and behaviors. Your mission is to make a map of all those factors so that you can continue your adventure. To help you draw your map, we could write a lot about how to perfect your product selection and merchandising, optimize your e-commerce storefront for both desktop and mobile, and make the most of every touchpoint where you engage with shoppers (such as e-mail and social). In each case, you succeed by tying your decisions to the needs of your shoppers.

To understand needs, you can rely on three vital sources. 

  • First, don’t discount the power of your own experience and good judgment. 
  • Second, use all the data you have about shoppers, including when they visit your site, how they got there, which products they browse and buy
  • Third, how do they pay? What can you infer about their income level and spending power from the purchasing and demographic data?

Before you continue on your adventure, however, there’s something important you need to know. There are two main types of BNPL solution. One type, the most common type, is a small installment loan. Shoppers apply for it at the time of purchase. If they are approved, they can pay the amount of their purchase in several installments, biweekly or monthly. Options include Affirm, Afterpay, Klarna, and QuadPay. The other type is based on existing credit cards. Installments are charged against available credit on cards the shopper already holds. Only one BNPL solution does this, and that’s Splitit.

Consider your typical customer order. Which of these describes what your ideal target shopper purchases?

The total order is typically around $500 or less.
The total order is typically over $500.
There’s a mix between lower and higher total order amounts.

Chapter 3: Credit History and Needs

You’ve figured out what shoppers need and made your way through the land of order values. Now you continue your adventure into credit history and needs. These considerations also impact your quest to offer BNPL in your e-commerce store.

As we’ve said, solutions either require a credit application, or they use existing credit. On the shopper side, some shoppers do not yet have a strong credit history. Others have a history, but they have issues with their credit score. Still others have a strong track record, and it shows in the credit they already have.

What you need to know at this point is the way this influences BNPL. So what kind of customers do you have in mind?

They want to build up their credit history. 
They have shaky credit.
They already have strong credit.

I just want to do what’s easiest for my business.

In traditional Choose Your Own Adventure stories, you might get eaten by a wild animal or a monster when you make the wrong choice. Then you have to start over. In your story, you also just made a choice that does not lead to a happy ending. If you don’t put your shoppers first, you get eaten by your competition. Think again and start over.

The total order is typically around $500 or less.

Solutions where the shopper applies for credit work especially well for smaller orders. They typically appeal to shoppers with less spending power or less overall affluence. In some cases, these shoppers even want to break purchases under $100 into installments, paying from a debit card from an account where they deposit weekly paychecks. This option can make the difference in their ability to make a purchase at all.

Now you can move on to considering your shoppers’ credit needs and history.

The total order is typically over $500.

Approval rates and amounts also are a factor to consider when looking at BNPL options. The -on-the-spot approval model means that shoppers typically receive approval for smaller amounts of credit. Afterpay can be a good option for these shoppers

However, Afterpay’s maximum is $1,500, so it would not be possible to use it with a larger purchase. Affirm allows limits as high as $17,500, although only shoppers with excellent credit can consider such high amounts. Meanwhile, Splitit is only limited by the amount of available credit the shopper already has. If shoppers have high credit limits with low balances, they can use Splitit to manage how high their balance gets in any one billing statement, making it easier to keep interest amounts low or pay in full every month.

Once you start to enter these higher price ranges, you start to venture into new territories, where customer credit needs and history play a part. Continue.

There’s a mix between lower and higher total order amounts.

What if you have a range of goods? Maybe you sell a mix of athletic accessories and fitness equipment, costume and luxury jewelry, etc. It doesn’t make sense to box out shoppers from buying bigger ticket items. Still, you also don’t want to make things harder on less affluent shoppers by preventing them from tapping into the benefits of BNPL options — which would be the impact of having an option that requires credit they don’t already have or that requires a credit history and score that they can’t meet.

The good news is that you can choose more than one BNPL option for your e-commerce store. You can choose both a financing-based and a card-based solution and let shoppers choose what works best. Many retailers now offer multiple solutions for that exact reason. They have a wide range of price points and shoppers, and they want to reach as many of them as they can. If you’re interested in offering more than one solution, you’re at the end of your adventure for now. You can read the next chapter to learn more about the differences between options, or contact Splitit to get started on your next adventure, called “Delight the Shoppers.” With good BNPL options in place, that one is yours to write!

They want to build up their credit history. 

Perhaps your shoppers are younger or less affluent. They might be looking to furnish a first home, build their wardrobe, buy exercise equipment, and more. They may not have credit cards, or they may only have small credit lines. New credit is a great way to build up towards larger cards, auto loans, and eventually even mortgages.

These shoppers will use and even welcome the option to apply for credit at the time of purchase. Affirm can be quite useful in helping shoppers build credit because shoppers can take out multiple Affirm loans and establish a track record of paying them off. Klarna also helps the shopper qualify for larger and larger purchases if they have a good prior payment history.

On the other hand, these benefits assume that the shopper pays on time without issue. Merchants should be careful to understand interest charges, late payment fees, and potential credit reporting issues if shoppers can’t pay off their installment plans. All of these factors can inadvertently detract from shoppers’ plans to build good credit.

When shoppers have one or more credit cards, even with low credit limits, they can also build history by paying these on time and paying them off regularly. Splitit is very helpful with this credit strategy because shoppers can have small monthly amounts, with no additional interest or fees, and then pay down or pay off their cards regularly. Over time, this contributes to getting approved for higher limits, cards with better benefits, and more. Continue.

They have shaky credit.

Shoppers looking to start again after some financial issues may also appreciate having BNPL options at checkout. Because of their credit history, however, they also may be less likely to be approved when applying for alternative financing at the time of purchase. Financing-based solutions could have an unintended consequence by frustrating these shoppers. Their approval experience rubs off on your brand. Merchants should vet the financing options carefully to understand approval rates before adding them to an e-commerce store. 

By contrast, the card-based approach of Splitit can make it an appealing choice in these scenarios. It works well for shoppers who have taken the first steps towards repairing their credit, with available balances they can use. With Splitit’s small monthly amounts and no additional interest or fees, shoppers get a tool to help pay down or pay off cards and improve their credit outcomes. Continue.

They already have strong credit.

You might think that shoppers with strong credit are best suited for financing-based options. After all, it’s easiest for them to be approved. In reality, they may be less likely to incur new debt. There are a few reasons for this counterintuitive attitude.

First, they are often more affluent. They can afford items at a higher price point without needing to get new credit to buy them. Second, they are savvier in how they use credit. They tend to compare balances, promos, rates, and rewards to make the most of the credit they already have. Third, they may like to budget, and will see interest-free payments over six months as a helpful budgeting tool. The idea of a biweekly, paycheck-to-paycheck payment scheme does not give them any advantages.

As a result, making sure these shoppers have a card-based option can provide a big boost to your sales. It can help nudge them to accessorize and add on or to upgrade from a mid-range to premium version of a product. With merchants who cater to such shoppers, Splitit offers significant benefits. Continue.

You’ve Completed Your Quest!

Congratulations — you’ve chosen your own adventure with BNPL! Now you know about the relative strengths of the BNPL solutions on the market and how to map them to your specific business.

So what’s next? Contact Splitit to get started on your next adventure, called “Delight the Shoppers.” With good BNPL options in place, that story is yours to write!