What is BNPL – Buy Now Pay Later? This is a type of credit offered by certain online merchants and fintech companies to customers. Customers do not have to pay for the purchases then and there. Instead, they can sign up with a company that provides this option and which will make the payment on their behalf. But, they will have to repay the amount within a fixed period of time. They can pay as a lump sum or through zero-interest monthly EMIS. If they cannot repay within the specified time period, the merchant will charge interest on the amount. By integrating this facility into their businesses – both online and in their stores, small businesses can expand and maintain their customer base. Also, merchant BNPL is becoming a main source of credit for small businesses when they buy from dealers. Let us read on to find out how merchant BNPL is making lives easier for small business owners.
How Does BNPL Work?
Third-party BNPL providers give an additional payment option at checkout. When the checkout is completed, the provider pays the merchant completely. The customer then has to pay the BNPL provider in installments.
Benefits of BNPL For Small Business Owners
The following points explain the advantages of BNPL for small business owners.
- Increases affordability for customers: Customers can now purchase products without worrying about their high costs. They can convert the amount they have to pay for their buy into zero interest EMIS. Thus, this leads to higher conversions for the business.
- Brings in new customers: This option attracts customers since those who thought that a business’s products were expensive can now buy without being conscious of the price. Merchants themselves will make the brands whom they fund and their products known to potential customers
- Leads to higher revenue for the small businesses: When there are more customer conversions, more sales happen thus increasing the flow of revenue into the business.
- Manage inventory: The Merchant BNPL option enables efficient inventory management. This option facilitates higher sales, and small business owners can restock their inventory. They can avoid overstocking.
- Retention of customers for long periods is possible:
Nowadays, keeping the customer engaged with a brand may be difficult due to the increased cost of living. Due to the easier payment options available through BNPL, customer lifetime value increases.
What is Merchant BNPL?
Merchant BNPL is a short-term loan provided to small businesses at the time of buying of a good or service from their suppliers.
Features of Merchant BNPL are as follows.
- The supplier receives the money in advance from the lender and it must typically be repaid within 15 to 60 days by the small business owner.
- Earlier, this was known as dealer/distributor credit. But Merchant BNPL differs basically from dealer/distributor financing in that it uses reliable data and advanced technologies to provide real-time loans.
- Also, initially, the loan amount under merchant BNPL will be low and it increases when the small business owner shows good repayment behavior.
- Merchant BNPLs receive easier approvals, since the small business owner is going to use the funds only for purchasing from the supplier and not for bringing in revenue to the business. So less credit risk is involved in this.
Here are some of the trends which will serve as a boost for Merchant BNPL:
- Enables Digital Management of everything: small business owners want to manage sourcing, logistics, and finance digitally. They wish to ditch the cumbersome paperwork procedures with BNPL.
- Credit at the point of transaction is becoming a reality. It is called embedded finance. It is similar to how UPI made payments simple.
- Electronic payments, eCommerce listings, transactions, ratings, and other digital and reliable data footprints are being generated enabling a quick underwriting process for small-ticket credit.
- Due to logistics innovation, brands can pursue a direct-to-retailer strategy through just-in-time servicing and supply chain fulfillment.
Merchant BNPL Not Only Makes Lives Easier For Small Business Owners
Merchant BNPL is beneficial for all the parties involved – sellers, retailers, and lenders. It serves as a platform for bringing together these 3 key players and is advantageous for all of them. Sellers get the money upfront. Retailers or the small business owners get goods without paying immediately. The lender gets a borrower who may come back to him for loans. He can then grant a larger loan to the borrower in the future. In this model, there should be a good relationship between the seller and the lender as this will ensure a seamless checkout process. The merchant BNPL provider or the lender helps the supplier and the SME in expanding their markets. The supplier can give his goods to several small business owners, and the small business owners can also get goods from more than one supplier (if he can manage to pay back the loans). This helps in market penetration for both of them.
Merchant BNPL is making lives easier for small business owners. SMEs can now get easy credit, give their customers an excellent checkout experience, and help their suppliers to drive higher sales. There are about 6 million MSMEs, and all of them will need working capital for the expansion and operation of their businesses. Thus, merchant BNPL has a great future.