WHAT TO KNOW BEFORE YOUR BUSINESS ADDS BUY NOW, PAY LATER

“Buy now, pay later” is becoming common at large retailers like Target, Ikea and Macy’s. More and more small-business owners are allowing their customers the ability to pay in installments, too.

In fact, 55% of local businesses use buy now, pay later online and 5% offer it as an in-store payment option, according to a February survey from payments news site PYMNTS.com.

If you’re thinking about offering buy now, pay later at your small business, here’s what you need to know.

HOW BUY NOW, PAY LATER WORKS

Buy now, pay later involves three parties: the customer, the merchant and the buy now, pay later provider. When a customer makes a purchase, the provider pays the merchant in full, minus fees. Then the customer pays the provider back in installments.

Buy now, pay later transactions cost merchants anywhere from 1.5% to 7% of a customer’s total purchase amount, compared to 1% to 3% for most debit and credit cards, according to a 2021 briefing from the Federal Reserve Bank of Kansas City.

For example, say your customer splits a $400 purchase into four payments of $100 each. If your buy now, pay later provider charges a 5% fee for this service, it would pay you $380 upfront for this transaction and collect the $400 from the customer over time.

WHY BUSINESSES OFFER BUY NOW, PAY LATER

Buy now, pay later may cost more than other payment methods, but advocates for the service say it brings additional benefits.

“We usually ask our retail clients not to think of us as a payment option, but as a new customer acquisition channel,” says David Sykes, head of Klarna North America.