Buy now, pay later is becoming an increasingly popular payment channel for merchants and consumers alike. As the name suggests, buy now, pay later transactions allow consumers to purchase an item and pay for it later, usually in a series of installments. While this payment channel is growing in both popularity and acceptance, there are still some questions merchants need to ask before setting up such a program of their own.
At the MAG mid-year conference earlier this February, a panel of key stakeholders in the payments ecosystem gathered to discuss the latest in payments technology. Here are the practical insights from panelists at Nordstrom, Elavon, MasterCard, and Redbridge.
Angie Grunte, Managing Director at Redbridge says, “Having a well-established yet flexible payment strategy is key to being able to effectively adopt new payment types and methods. However you must first determine which options will truly create the best experience for your customers and value for the organization.”
“For us, it came down to looking at what platforms were available,” says Daniel Crisologo, Director of Payments at Nordstrom. “There were a lot of criteria that we needed to look at.” These criteria included the number of new customers coming into the sales funnel, a virtual card versus API integration and the cost differential compared to the ease of use for the consumer. “At Nordstrom, we always focus on the user experience first,” says Crisologo. “Obviously, cost is a factor, but the user experience is paramount.”
Joe Myers, President, Elavon North America, a global payment processor, notes that there several critical points for merchants to consider. “The integration path, how it all comes together. The experience for consumers and how easy it is for them to adopt and use.” Ultimately, he notes, it’s about expanding the options for consumers to be able to purchase goods, either in-store or online.
Referring to his company’s involvement with acquirers and merchants, Pablo Cohan, Senior Vice President of Digital Solutions at MasterCard, says, “There are a lot of options out there, so we need to take a step back and understand the (merchant’s) pain points.” He notes that MasterCard is focused on giving lenders the ability to attract consumers to the platform and providing those consumers with purchasing power.
What to consider during implementation
There can be challenges during the implementation of any new channel and this is also true for buy now, pay later.
Nordstrom’s Crisologo, noting the biggest challenges the retailer faced during the implementation of its buy now, pay later program, says “Having an effective testing platform is important. As is understanding the success metrics and making sure you can measure these effectively.”
In addition to metrics, there is also the question of the type of implementation. Says Crisologo: “You have to decide whether you want quick and easy, which is a virtual card and API integration, or a hybrid of the two.” Whatever type of implementation a merchant chooses, it is important to try the product before using them. “If I had the opportunity to go back, I would use the product a lot more to make sure some of the gaps in servicing were resolved.” Another important aspect to consider is the amount of time for integration. How long will it take for the program to be up and running so the merchant can take advantage of the channel? In Crisologo’s experience, it doesn’t necessarily have to be that long. “They’re very good at rolling these out. It’s literally a tap and go transaction. It’s super easy.”
There is significant involvement from all key players during the implementation phase. MasterCard’s Cohan notes that his company is “very involved” with its acquirers and merchants during the implementation phase. “We’re highly engaged to make sure everyone’s ready for that first transaction to work without a problem. This is a turnkey solution with a low investment and if it drives volume and value, then great.”
Following up: data and privacy are paramount
The evaluation of the program doesn’t stop once it has been implemented, though. There may be some difficult situations that arise for merchants and consumers. This includes fallout, for example. Myers notes that this can be a problem: “If there’s a consumer in the store looking to get approval and expecting to get approved and they don’t, that causes frustration.”
While there may be some difficulties, for merchants like Nordstrom, the benefits clearly outweigh any negative factors. Notes Myers, “Giving that choice across payment methods and driving activity and, ultimately, sales and revenue” are some of the key benefits. Nordstrom’s Crisologo agrees: “We want our customers to be able to choose the platform that they use.” And the company has seen significant growth in customer acquisition and incremental sales as a result. Once the channel has been implemented, it needs to be tracked and measured. And that requires a basic infrastructure to gauge the success of the program. “Data is 100% a key part of that,” says Crisologo. “You want to be able quickly learn and evolve.”
As with everything, privacy is also a major concern. The data that is generated needs “to be used only for the purpose for which it is intended,” as Cohan says. “Anything else without consumer consent is not okay.” Merchants need to spend a lot of time talking with their legal and security teams about this topic. Merchants also need to think about the breakeven point for accepting buy now, pay later transactions to make sure it’s a sustainable channel in the long term. “Where incrementality is helping to offset the costs, when does the funnel dry out?” asks Crisologo.
An evolving channel – with lots of promise
What is the future of buy now, pay later? How will it evolve? While there are still questions about how buy now, pay later will change over time, the channel is off to a good start, with acceptance among both consumers and merchants increasing and transaction volumes rising.
Redbridge’s Grunte remarks that “As the buy now, pay later space continues to evolve, it is important to be selective in choosing the right partners and being prepared to deal with dynamic changes as the market continues to develop and face regulatory scrutiny.”