Should you offer buy now, pay later options?

Buy now, pay later payment gateways are increasingly popular payment methods, especially with younger generations, and are something that you should strongly consider integrating with your store. We’re going to lay out all of the information for you about the pros and cons of these gateways, how to connect with the BNPL gateways that ShopWired offers integrations with and breakdown what each gateway has to offer to help you decide if you want to integrate and if so with whom. But first, in case you were wondering...

What exactly are buy now, pay later payment gateways?

A buy now, pay later gateway allows your customers to purchase a product without having to immediately pay for the whole thing. These gateways offer your customers an interest-free payment plan so they can pay for their order in set instalments. You, as the owner of the store, receive the full purchase price from the payment gateway, less their fee, within days of the order being placed, so you don’t have to wait until the full purchase price comes in. Since they take on the full risk of non-payment, you don’t have to worry when choosing to integrate with them that you might not get paid. 

Why should you use ‘buy now, pay later’ gateways?

Boost your sales and customer retention
All of the BNPL gateways that ShopWired offers integrations with make claims that using them will boost your sales per order, increase returning and new customers and reduce how many customers abandon their cart before completing checkout. All of these are great things to work towards and are real advantages to adding these gateways to your site.

Keep up with your competition
As BNPL gateways become more popular more ecommerce sites are starting to use them. With 9.5 million Brits saying they've avoided buying from retailers who don't offer these gateways (Finder) you don't want to lose customers simply because you haven't kept up with the changing trends.

Customer happiness
But the best and main reason to use BNPL gateways is that your customers like and use them. As of 2021, 37% of Brits (Finder) and 55.8% of Americans (The Ascent) have used a BNPL gateway. This is massive growth from the previous year, and while some of this growth can be attributed to the pandemic, now that consumers have really started using these gateways this upward climb is very likely to continue.  And remember, offering a BNPL gateway doesn’t mean you’re isolating your customers who don’t want to use them as you’ll always be able to offer multiple ways for them to pay. 

So, why should you be wary of buy now, pay later gateways?

With the above mentioned perks of using BNPL gateways you might be thinking that you immediately want to sign up to one, but just before you do let's review just a couple of reasons why it's okay to be a little hesitant before signing up:

Higher cost to you
Buy now, pay later gateways tend to have higher fees for you than ordinary payment gateways. Since they don’t make any money directly from the customers (unless the customer is late paying), they make up for this with high charges to you. In this way they work much like other more traditional payment gateways. However, BNPL gateways are much less transparent about what their fees to you will be. It’s difficult to know exactly how much they’ll cost you without applying to sell with them, as they don’t post their fees directly on their website. This is largely due to the fact that your individual circumstances will affect the rate they offer you, but you can expect the rate to be anywhere from 2 - 6% on average 

The ethics involved
While buy now, pay later gateways can offer customers a good alternative to racking up credit card debt, there are risks involved that aren’t as obvious to people, especially as fewer people know that these gateways are in fact offering them a form of credit. 

Because BNPL offerings are (currently) unregulated they do not have to run affordability checks on their customers, and instead run checks more focused on mitigating their own risk for lending. Based on these checks they cannot see if customers have outstanding debt with other BNPL gateways which can hurt customers by allowing them to take on debt with multiple companies.

Which buy now, pay later gateways is ShopWired integrated with?

ShopWired has integrations with Klarna, Zip and Laybuy. 

How do I connect to a gateway?

To connect your ShopWired account with any of these payment gateways you must first create a merchant account with your chosen gateway. Once you’ve created an account you can configure the payment gateway within your ShopWired account in the same way that you would add any other payment gateway. Checkout our 'Installing a payment gateway' help guide which talks you through how to connect payment gateways to your ShopWired store. 

Should you offer more than one BNPL gateway?

By offering multiple BNPL gateways it’s more likely that you’ll have the payment gateway that any given customer of yours is already signed up to and likes to use. With 7% of users who abandon their cart saying they did so because of the lack of the right payment gateway this can help you reduce the rate of cart abandonments. Additionally, having the BNPL gateway that your customer already uses can lower the chance that they’ll take on more debt by opening an account with a new gateway. However, this can be a double-edged sword as it also allows your customers the opportunity to pay with you by using a new BNPL gateway if they’ve already maxed out their expenditure with their first choice gateway.

How should you decide which gateway(s) to choose?

If you’re now convinced that offering a BNPL gateway would be beneficial to your customers, you might be wondering which gateway you should choose. There are many factors to consider such as:

• What sort of purchase payback time frames they offer to customers
• If they charge your customers late fees
• How often they pay you
• The transaction fee that they’ll charge you on the purchase
• What policies they have to combat fraud

To help you decide we’ve listed the main attributes of each gateway that ShopWired offers integrations with:

What Klarna means for your customers:

Payment scheme:
Klarna offers your customers the opportunity to pay for their order in 3 interest-free instalments over a 3 month period. The first payment is made at checkout, the second payment is made 30 days later and the final payment is made 60 days after purchase.
Additionally, if you choose to offer it, Klarna also has an option allowing customers to defer payment for 30 days, so they can try the products before committing to purchasing them. 

Customer eligibility:
Customers have to be 18+ with a Klarna account. Having an account will not immediately qualify them for credit. Credit decisions are made for each individual order that a customer tries to make. The amount of credit a customer can take out depends on a number of different factors, but most importantly the customer's past history with using Klarna. Therefore credit limits are smaller for new customers.

Risk to the customer:
Klarna runs a soft credit check which doesn’t impact the customer’s credit. Klarna doesn’t appear to charge late fees to customers within the UK, but it will pass debt onto debt collectors if necessary which can negatively impact credit scores.

What Klarna means for you:

Their transaction fee:
According to their website Klarna’s transaction fees to you can be anything up to £.20 + 5.40% per transaction. What your actual fees will be will depend on the circumstances of your business and the only way to know for sure what they will be is to get in touch with Klarna to begin setting up an agreement with them.

How often they pay you:
How often Klarna will pay you will also depend on the terms of your agreement. When you send the products to the customer the order is then activated, and you will receive the money depending on the terms of your ‘payment delay’ They state that their most common payout time is ‘daily with a weeks delay’.

Fraud policy:
Klarna protects its merchants from fraud as long as they have complied with Klarna’s shipping policies. 

Restrictions:
Klarna, like many payment gateways, places some restrictions on the types of products you are allowed to sell when using their gateway. Those products are laid out in their ethical guidelines. 

What Zip Pay means for your customers:

Payment scheme:
Zip offers your customers the opportunity to pay for their order in 4 equal interest-free instalments over 6 weeks with the first payment occurring when they place their order.

Customer eligibility:
To qualify for Zip a customer must be over 18 and living in the UK with a UK debit card. A customer must have good credit history and pay back their Zip payments ontime in order to be eligible for future credit. Credit decisions are based upon an individual order. Credit can be given for up to £1000.

Risk to the customer:
Zip runs a soft credit check which doesn’t impact a customer’s credit. If a customer is late making a payment, they will be charged a £6 late fee for each payment missed. The late fees are capped at £18 per order to prevent customers from accruing too much debt. The customer must pay off anything outstanding with Zip before they can attempt to use the gateway on a new order. 

What Zip Pay means for you:

Their transaction fee:
Zip’s fees to you will be charged per successful transaction, but in order to garner an idea of what their fees will be you will need to contact one of their business managers. Upon placing an application with them they will discuss the transaction fees with you which will differ depending on the circumstances of your business. The bigger that your business is (or becomes over time) the more likely it is that you will receive better rates from Zip.

How often they pay you:
You receive the full payment for the transaction, minus Zip’s fee, the next business day after the transaction.

Fraud policy:
Zip takes on all of the risk of fraud.

What Laybuy means for your customers:

Payment scheme:
Laybuy offers customers the ability to pay in 6 weekly interest-free instalments with the first payment occurring when the order is placed. 

Customer eligibility:
Customers must be 18 and a resident of either New Zealand, the UK, the US or Australia. They must have a valid email, phone number and debit or credit card. The amount of credit a customer is entitled to is limited by LayBuy on a case by case basis. This amount can increase when past orders using LayBuy are paid off on schedule.

Risk to the customer:
Laybuy runs a credit check to determine if a customer is eligible for credit. If a customer fails to make a payment on time, they will be charged a late fee of £6. If the payment remains unpaid for another 7 days another £6 charge is made. Customers cannot borrow more from LayBuy until all fees and past instalments are paid.

What Laybuy means for you:

Their transaction fee:
As with other BNPL gateways Laybuy are not very transparent about what their individual transaction fee will be for your business as it will largely depend upon the circumstances of your business. To find out what their fee is likely to be you will need to contact Laybuy and begin creating a merchant account with them.

How often they pay you:
All transactions placed in a day are settled in one lump sum, minus Laybuy’s transaction fees and any refunds you have made, into your bank account overnight.

Fraud policy:
Laybuy takes on all of the risk of fraud.