FINANCE

Why retailers are buying now, provide financing services later


The supply chain is shut down and production is limited. For weeks, the headlines have been telegraphing a clear message to shoppers: shop early this holiday season.

Over the years, early bird buyers may have turned to layout plans to save holiday gifts and pay for purchases over time. But many retailers, including Walmart, the country’s largest, have shut down or postponed these programs. One reason is that buyers have new tools at their disposal to spread the payment.

A popular option for consumers is to buy now, provide plans later. Retailers are also big fans. Point-of-sale loans are easier for retailers to manage, and research shows that these options lead to bigger baskets and customer loyalty. RBC Capital Markets estimates that a BNPL alternative increases the retail conversion rate from 20% to 30% and raises the average ticket size between 30% and 50%.

Adding growing sales

“It’s all about incrementality,” said Russell Isaacson, retail and automotive director at Ally Lending. “

According to Hemal Nagarshet, an associate partner in Kearney’s financial services practice, installment payments give customers options and benefits when it comes to budget management and purchasing. This option, he said, boosts confidence between retailers and consumers, resulting in “increasing sales, higher average purchase sizes and higher frequency of purchases”.

Buy now the payment plans offered by companies like Apharm, Australia-based AfterPay, and Klarner in Sweden, especially attractive to young shoppers, such as General Z and Millennial Consumer. Although there are differences in each plan – from the number of payments to the specific terms – the main match is the promise of a handful of equal payments in a relatively short period of time, without any hidden fees. Often, the plans are interest-free.

Installment payments are more popular among consumers who either do not have access to credit, or for various reasons, do not want to buy with a credit card. This option also makes a lot of money for buyers who don’t have the funds to make a total purchase, but it will be on the next several paychecks, according to Allied President Hans Jandhuis.

The average transaction price to buy now is $ 200, pay to buy later, Jandhuis said. He said often the checkout price for the retailer would be around 100 100 if he did not have the ability to pay later. With that, the same consumer can spend 175 to $ 200, with a ড 4 monthly payment of 50. Payment means consistent with the pay-check cycle.

Take the clothing retailer Rue21 for example. Its core demographic is an 18- to 25-year-old female shopper who does not often use a credit card. With much lower priced items on its website, and reduced mall traffic, increasing the average order volume is a major priority.

When the epidemic closed the store, Rue21 had to figure out how to sell online without credit to its customers. According to a case study published by Clarna, since Rue21 has added Clarna as a payment option in stores and online, its average order volume is 73% higher than other payment methods. Rue21 buyers have a 6% higher purchase frequency in the maximum sales per customer than those who transact with Clarna. As of May, Clarna purchases accounted for more than a quarter of Ryu21’s e-commerce sales.

A logo sign outside the location of a Rue 21 retail store in Chambersburg, Pennsylvania on January 25, 2019.

Kristoffer Tripplaar | Sipa through AP image

Sure is proud that its merchant clients report an 85% increase in average order price while consumers prefer to use its BNPL plan in other payment methods. Epharm approves installment payments for purchases over 17 17,500, which has proven to be crucial for Peloton’s expensive exercise equipment and services. FT Partners, an investment bank focused on Fintech Space, estimates that 30% of Efarm’s first-quarter 2021 revenue came from sales on Peloton’s website.

Klarner Merchant Base The average order price increased by 45% when a buyer made four payments. Buyers can pay interest-free within days and 0 days, or pay for large purchases with a monthly interest rate of 0% to 2.9..9% per annum from pay to months.

New customers

The retailer cannot be discouraged if it attracts a buyer otherwise another advantage of offering to buy now, provide options later.

Earlier this year, Massey CEO Jeff Janet told investors that his partnership with Clarna was helping it attract new customers.

“We launched Clarna on Macy’s website in October [2020] And we’ve scaled it across both Messi, Bloomingdale and Bloomberg, both online and in stores, “he said. With Klarner, we continue to see higher spending per visit and new young customer acquisitions growth, 45% less than 40 years. Our goal is to convert all these new customers into loyal customers of Macy’s, who come back for future purchases. “

In the most recent fiscal year, about 93% of the total value of AfterPay came from repeat users of installment payment services, with the longest-term consumer making more than 30 transactions per year.

Higher conversion

Installment payment to the retailer “Conversion a [consumer’s] According to Chris Ventry, vice president of the company at Global Consultant Group SS & A, it wants to sell. “It removes the payload block,” Ventry said. Enticing through BNPL, finally tempting enough to drive conversions, which is the primary goal of all digital commerce sites. “

Simileweb’s analysis of the top 100 US fashion and retail websites compared them to 50 merchants who now offer to buy, pay for checkout later, and 50 do not. On average, BNPL alternative sites have seen a conversion rate of 6% compared to 4% for those who do not.

AfterPay says it increases a retailer’s conversion rate and growing sales by 20% to 30% more than other payment options.

Rising revenues and increased conversions also increase the cost of transactions to retailer Fintech. When the retailer pays the BNPL company an additional 2% higher transaction fees than a traditional themed credit card company charges, the math itself says, more than the additional revenue costs, Jhandhuis said.

AfterPay and Clarna charge merchants 3% to 5% of transaction fees, while Epharm refuses to disclose its transaction fees.

There are also advantages to programs compared to traditional theatrical layouts, which require retailers to store items purchased on site while customers pay installments over time. Increasingly retailers are using stores as a mini-fulfillment center for online ordering. In this model, store space is at a premium.

Opportunities for growth

According to FIS WorldPay, Buy Now, Pay Later is the fastest growing e-commerce payment method worldwide. In 2019, the 60 60 billion BNPL market represents 2.6% of global e-commerce excluding China.

WorldPay estimates that use of the option could reach comp 16 billion by 2023 with a compound annual growth rate of 2 compound%. At that rate, it would account for about 5% of global e-commerce outside of China.

According to FIS WorldPay, at the moment, BNPL accounts for less than 2% of North American sales.

John Harmon, a senior analyst at Corset, acknowledged the opportunity for retailers, but did not see it as an ace.

“I don’t see the BNP as a magical solution, despite its growing acceptance, because it’s a different kind of credit,” Harmon said.



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