Shop Now, Pay Later is trending with consumers, investors and merchants world-wide. It is essentially the transformation of payment methodology on new and exciting digital platforms and based on the success, it looks like it is here to stay. The value proposition of Shop Now Pay Later apps and payment services is that it offers consumers the option to delay payment or pay by installments at no extra cost which has made it an ultimate game-changer in the retail and e-commerce industry.
Before Shop Now Pay Later, the structure of the retail/online shopping market was limited to 3 payment options for consumers shopping for goods and merchandise in person and via web. The first option that exists is to pay outright and instantaneously with cash or debit cards. The second option is to pay with credit cards (if one qualifies for a credit card). In both of these cases, merchandise can be received immediately, but the clear distinction of this service from credit cards is that it doesn’t charge interest to the consumer for the use of credit. Lastly, in rare cases, select stores have provided a lay-away payment option where shoppers can put a deposit down and pay for merchandise overtime. The caveat in this case is that the merchandise is only received after the items are paid for in full. In addition, many stores that offer layaway limit it to certain items and/or certain departments, such as jewelry or electronics. Some store policies also include a service fee, cancellation fee and restock fee with the layaway payment option.
For online shopping in particular, these limited payment options combined with long complicated checkout processes and additional costs like shipping leads to high rates of cart abandonment at checkout (69%). (2) Hidden costs, website security issues and delays are just a few triggers for why most shoppers ditch a product after it lands in their cart. In addition to the bad customer experience, cart abandonment ultimately results in significant sales profit loss for ecommerce stores. In recent years, no major changes were made to these high rates of reverse profit loss or offer alternative processes and payment options for consumers until now. With the phenomenon known popularly as shop now, pay later, companies have developed strategies to transform the customer shopping journey and create true revenue-boosting opportunities for retail partners.
There are several companies (and counting) that have thrown their hat in the race to be the best shop now, pay later app. The top 4 buy now pay later companies are Klarna, Afterpay, Affirm and Sezzle. With buy now, pay later, these companies disrupted the shopping industry’s market dynamics and created a revolution in the online and retail shopping industries as well as in banking/loan borrowing. Currently through Klarna, consumers can opt to ‘Pay Later’ (between 14 to 30 days after purchasing), ‘Pay in Three’ (repaying in three equal statements) or ‘Slice It’ (where you repay in installments for anything from three months to three years). Leading company, Klarna, has positioned itself as a “middleman payment option that not only promises to make shopping more ‘frictionless’ for the consumer, but also more lucrative for retailers.” (1)
Most of the shop now pay later companies use AI similarly to provide the same exact options such as splitting the payments in 3 or more installments and offering interest free payments. The brand positioning is usually shown when each company goes to market with differentiated promotional and media tactics. For example, Klarna’s bold branding and marketing has made a strong impression in the once stuffy payments industry. The company captured the world’s attention with its pop adjacent branding, cutesy Pepto-pink logo and flashy celebrity credentials like Snoop Dogg and Lady Gaga.
In our app-driven world, convenience is king and the offer to shop now, pay later with no strings attached makes shopping a lot more compelling for all consumers and valuable to partner merchants. The innovative digital changes these companies have made over the years go far beyond a typical loans banking company or a shopping platform. They disrupted the e-commerce and retail industry with ground-breaking methods to simplify consumer shopping.
- “Meet The Man Behind The ‘Buy Now, Pay Later’ Shopping Revolution”. Elle magazine. Nathonson, Hannah. https://www.elle.com/uk/life-and-culture/a32048920/klarna-sebastian-siemiatkowski/
- “Reducing cart abandonment rates with a better checkout experience” Klarna.com https://www.klarna.com/knowledge/articles/reducing-cart-abandonment-rates-with-a-better-checkout-experience/