Which businesses is BNPL most suited to?
Many businesses are now offering consumers BNPL and other types of consumer credit; however, in the rush to not get left behind, some of these companies have forgotten to really ask themselves whether it is right for their particular type of business.
One of the key steps in designing online payment plans, that allow purchasers to pay for products and services in instalments, is to decide the order value at which credit is offered.
Some online merchants and marketplaces might set this at a relatively low-level. For example, one UK high street and online fast fashion retailer that offers BNPL through a popular provider sets this threshold at £25 for a three instalment plan.
However, where best to set the threshold is likely to be different for businesses in different market sectors. One approach is to look at BNPL through the lens of demographic segments..
The unregulated nature of BNPL and the bad experiences of some consumers are being picked up and amplified by the media, giving BNPL a bad name. Many of these are young or vulnerable people that have failed to understand the consequences of not abiding by the terms and conditions of their agreements. Whatever the reasons, the bad press is not a good look for the consumer credit industry or the merchants involved.
A natural fit with high order value thresholds
Avoiding the potential of being drawn into any such controversy, some of the businesses that BNPL is really well suited to are those that sell higher value products and services. These businesses target more affluent consumers and are able to set the order value threshold relatively high.
Two areas of the economy where this is particularly suited to driving sales among more solvent consumers are the travel industry and the luxury goods market.
The travel industry
BNPL is certainly very attractive to the travel industry, especially travel agents offering bespoke tours.
Higher value travel - One key reason is that offering BNPL or other form of credit incentivises people to book upgraded tour or travel elements, or even opt for more expensive trips per se, from the outset.
Spreading payment - The travel industry has traditionally operated a deposit and balance approach to paying for holidays and travel. However, BNPL takes this a step further. For example, one approach could be to restructure a payment schedule, letting travellers put down the deposit and pay the balance in instalments.
Volume business - With BNPL proven to increase conversion and order values, in an industry where margins are often on the low side, driving higher volumes of sales is also a key reason why the travel industry and BNPL are a good fit.
Luxury brands, goods and services
BNPL is also an attractive proposition for boutique businesses offering such things as jewellery, designer clothing and interior design products and services.
Bringing luxury within reach - Luxury goods are not necessities - they are ‘nice to haves’; price isn’t usually a barrier to those with wealth and they don’t need payment plans to spread the cost. Where BNPL does come into its own in the luxury brand marketplace is that it enables people, who wouldn’t normally be able to purchase without worrying about how to pay for a luxury item, to divide the cost into manageable instalments. These can be paid over a fixed term without creating the need for a bank loan and interest, or inviting credit card charges or other surcharges for arranging financing.
Fear of missing out (FOMO) - Another major driver of why luxury brands choose to offer BNPL is to level the playing field with their competitors. Luxury brands have a tendency to shadow each other and research very closely what competitors are doing. In the effort to attract customers and be seen as providing flexibility and ‘white glove’ service, some luxury brand sales principals might suspect they are missing a trick. Today, providing payment plans at the online checkout or offering some type of consumer credit seems to be a necessity.
Get started with Synapi today
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