Page 67 - Retail World March 2021

LOTS MORE OPTIONS WHERE DEFERRED IS PREFERRED Buy now, pay later is on everyone’s radar, and not only because Australia is the epicentre of the industry. ABy ClearSale Country Manager Australia Ralph Kooi. fter the retail disruption of 2020, the year closed with plenty of activity in the buy- now-pay-later (BNPL) sector. In December, Afterpay announced a partnership with Israeli software company Wix to help SMBs that host their stores on the Wix platform to add BNPL options. Competitor Limepay raised $21 million in its second funding round of the year. US card issuer Capital One banned BNPL transactions using its cards, presumably to protect its revenue model. Competitor Chase took a different approach, announcing its own BNPL program for cardholders in November. This is exciting stuff for investors, fintech enthusiasts and the business press. However, the rapid pace of change in BNPL requires merchants to do their research before choosing, or renewing with, a BNPL vendor. That’s especially true now that Limepay is looking to bring a different approach to the BNPL market. A new model for BNPL? What sets Limepay apart is the promise of a streamlined checkout that leaves merchants in control of their own customer data. While most BNPL providers require customers to create accounts, secure pre-approval and use their checkout process to make online purchases with partner merchants, Limepay integrates its checkout with the merchant’s, so customers don’t have to take the extra step of going to the BNPL website to place an order. Keeping customers on their store website also means merchants aren’t sharing customer data with a BNPL provider that may also promote the merchant’s competitors in their marketplace. BNPL benefits for e-commerce merchants Regardless of the details of the BNPL experience, there are potential benefits for merchants that offer a BNPL option. They include: More sales. Budget-minded shoppers who wouldn’t drop $160 on a sweater, for example, may be willing to buy that sweater in four $40 instalments. Particularly for stores with many millennial and Gen Z customers, offering BNPL can close the sale. In April 2020, PYMNTS.com claimed that 87 per cent of consumers aged 22 to 44 were interested in BNPL options. Higher AOV. Afterpay US Chief Revenue Officer Melissa Davis told the Retail Dive newsletter in 2020 that BNPL flexibility lets customers spend more per order because they can pay the total out over time. Swedish bank Klarna states that its merchants see an average 45 per cent increase in average order value (AOV). Greater cross-border reach. BNPL options that offer cross-border transaction processing capabilities can help merchants sell into more markets. For example, Afterpay now gives partner merchants the option to sell to customers in Australia/New Zealand, the UK and Canada – and the company plans to expand this into the US in 2021. Klarna partners with Global-e to offer cross- border payment acceptance across Asia, the EU and the US. Cross-border BNPL can also help merchants broaden their international customer base by offering an option that’s already popular in some markets. For example, as many as 80 per cent of e-commerce payments in Latin American countries are made in instalments, often handled by the merchant. BNPL can help merchants give these customers the payment option they prefer without taking on the task of managing recurring payments in-house. Reduced liability for fraud. BNPL providers that handle payment processing for merchants assume payment fraud risks that would otherwise be the merchants’ responsibility. Also, the additional steps that consumers must take to qualify for BNPL require more data than most fraudsters can share without detection. However, not every BNPL vendor takes on that risk. For example, Limepay partner merchants remain responsible for the cost of chargebacks. BNPL decision factors for merchants Because new options are emerging in BNPL, it’s up to merchants to understand what each vendor offers before selecting one. Here are some key factors to consider when choosing a vendor: Processing and service fees. Fees for BNPL transactions vary by vendor but are markedly higher than credit card fees. Will an increase in total orders and AOV offset the fees charged by the vendor? International reach. Retailers wishing to expand their geographic footprint without investing heavily in cross-border marketing and payment processing may want to select a BNPL provider that supports instalment payments on cross-border orders. On the other hand, stores that don’t want to expand and those that already have an international presence may not need this feature in a BNPL service. Fraud liability. As discussed above, some but not all BNPL vendors take chargeback risk off the merchant’s plate. The trade-off for this risk reduction is less control over the customer experience during checkout. Checkout friction and customer experience. BNPL that requires too many extra steps may turn away some customers. In a March 2020 Sapio Research survey for ClearSale, 44 per cent of Australian online shoppers said they’d abandoned purchases because checkout was too long or complicated. Forty per cent said they’d ditched an online cart when they were required to create an account in order to pay. Merchants already struggling with a high cart-abandonment rate due to friction at checkout – and those that have recently streamlined their checkout to increase conversions – may want a BNPL vendor that integrates with their checkout, to avoid recreating or worsening cart abandonment. Competition and brand loyalty. Many BNPL vendors have positioned themselves as shopping portals, with curated directories of partner stores that they encourage customers to visit. This may divide customer attention and loyalty. It also gives the BNPL provider a trove of data on their merchants’ customers’ habits and preferences, which they can use to market other offers to them. Merchants should consider whether the risk of connecting their customers to a BNPL marketplace outweighs the benefits of offering BNPL through that provider. PAYMENT MODELS MAR, 2021 RETAIL WORLD 65