Buy Now, Pay Later: A Simple Way to Increase Sales

Picture this: a potential customer finds the perfect item for them in your store, but they hesitate to make the purchase because they just can't afford to pay the full price right now.

What's the best way to overcome this problem…?

Unlike credit cards, which often come with hostile interest rates and hidden fees, there's a simpler and more transparent solution: "Buy Now, Pay Later" (BNPL).

BNPL has become incredibly popular recently, as it allows customers to purchase products immediately after agreeing to pay a series of interest-free installments over a period of time.

In this article, we'll explore how BNPL works, compare the top four BNPL providers that can be integrated into your Shopify store, and show you how it boosts sales and revenue.

How Buy Now, Pay Later works

Buy Now, Pay Later is a financing option that enables customers to split the cost of their purchase into multiple, interest-free installments. Here’s a step-by-step breakdown of how BNPL typically works:

1. Customer selection: At checkout, customers choose the BNPL option instead of paying for the products in full.
2. Installment plan: The subtotal is divided into smaller, more manageable payments, usually spread over a few weeks or months.
3. Immediate purchase: The customer receives their order immediately (even though they haven’t paid for the products in full yet).
4. No interest: Most BNPL services do not charge interest, making it a very attractive option for customers.

Why BNPL entices customers and boosts revenue

Customers love Buy Now, Pay Later because it makes shopping more affordable and flexible. By offering BNPL, you are making your products more accessible to them through:

• Increased purchasing power: BNPL allows customers to buy items they might not be able to afford upfront. By spreading the cost over time, customers can purchase higher-value items without feeling the immediate financial strain.
• Improved cash flow management: For customers, managing cash flow becomes easier with BNPL. They can plan their finances far in advance because they know there are fixed amounts they need to pay at specific times.
• Enhanced customer experience: Offering BNPL shows that you understand your customers' financial constraints. This can lead to higher customer satisfaction and loyalty.
• Higher average order value: Customers are likely to add more items to their cart when they know they can pay in installments. This can significantly increase your average order value (AOV).
• Reduced cart abandonment: One of the primary reasons for cart abandonment is the high upfront cost. BNPL can mitigate this by making the purchase more affordable through installments.

In a 2021 study by C+R Research, the team looked at the effects of COVID on BNPL trends and found that 59% of the respondents purchased unnecessary items they wouldn't ordinarily be able to afford.

Top BNPL providers for your Shopify store

Shopify has already compiled a comprehensive list of BNPL providers that you can integrate into your store, but we'll narrow it down to the four most popular options for you: Klarna, Afterpay, Affirm, and Shop Pay Installments.

1. Klarna

Klarna is a leading BNPL provider that offers flexible payment plans, including the option to pay in four installments or spread the cost over a longer period of up to 24 months.

To integrate Klarna into your Shopify store, simply install the Klarna On‑Site Messaging app and configure your preferred payment options.

Klarna's own statistics show that 44% of users would have abandoned their order if the service’s interest-free installments weren’t available.

Pro: Klarna is well-known and trusted by customers in all key regions, which increases their likelihood of using the BNPL option.

Con: As an industry leader, Klarna can afford to charge higher fees compared to other BNPL providers.

2. Afterpay

Afterpay—also known as Clearpay in the UK—is another trusted BNPL service.

It stands out because of its “responsible spending” approach, which creates a personalized spending limit for shoppers based on their credit history to prevent overspending.

To integrate Afterpay into your Shopify store, try the Afterpay On‑Site Messaging app (or Clearpay if you're based in the UK) and follow the setup instructions to configure your payment settings.

Pro: Afterpay's spending limits ensure customers always stay within their means.

Con: The late payment fees can be steep (up to 25% of the order price), and that may scare some customers away from using the service.

3. Affirm

Affirm is currently used by over 245k merchants to provide the option to pay in monthly installments, making it a flexible choice for higher-value purchases.

According to Affirm's website, merchants using the service see an average increase of 85% in order value and a 20% increase in conversion rates.

To integrate Affirm, download the Affirm pay‑over‑time messaging app and set up the payment terms and conditions according to your preferences.

Pro: Attractive payment plans can significantly boost order value and conversion rates, making Affirm a powerful tool for businesses that want to grow quickly.

Con: Affirm's complex approval process for both new and returning customers could deter some people.

4. Shop Pay Installments

Shop Pay Installments is offered by Shopify itself (in partnership with Affirm) and is designed to give small online businesses the same BNPL benefits enjoyed by major retailers, including the option for customers to pay in 4 interest-free installments.

To check your eligibility, log in to your Shopify admin and navigate to Settings → Payments. Click Manage under Shop Pay Installments. If eligible for the premium package, you'll be able to review and select your financing options.

Pro: Shop Pay Installments is seamlessly integrated with Shopify, making it the easiest option to set up and use for Shopify merchants.

Con: Installments are currently only available in the USA, vastly limiting your global reach and excluding merchants in key regions like the EU and the UK.

Bonus tips for maximizing BNPL benefits

Want to make the most of Buy Now, Pay Later? Here are some final quick tips to help you implement this strategy:

• Promote BNPL options: Make sure your customers are aware of the BNPL options you have available. Try to highlight BNPL on your product pages, at checkout, and in selected marketing materials.
• Offer clear terms: Transparency is key. Make sure the terms and conditions of the BNPL plans are clearly communicated to avoid any confusion or dissatisfaction.
• Analyze performance: Regularly review the performance of your BNPL options. Track metrics such as conversion rates, average order value, and customer feedback to make data-driven decisions.
• Optimize checkout process: Ensure that the checkout process is smooth and user-friendly. A complicated checkout can deter customers from completing their purchase, even with BNPL options.