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 $
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
L AT E R
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.
According to the PYMNTS.com survey,
a higher percentage of millennial and
Generation Z customers are interested
in using buy now, pay later compared to
respondents of other generations, particularly
at luxury and specialty stores.
“If you’re a boutique, if you’re artisanal, if you’re
a high-margin business, (serving younger
customers) offers you the opportunity to have a
longer-term value for that customer,” says Julian
Alcazar, a Federal Reserve Bank of Kansas City
payments specialist.
Buy now, pay later may also lead to more customers
increasing their spending. That’s been the case for
online sustainable clothing marketplace Wearwell.