There are so many aspects that go into running your ecommerce store — finding the right combination of products, creating eye-catching product pages with tasteful images, reaching relevant customers with your marketing efforts, managing inventory and shipping, to name a few.
The decision of which payment option to use likely falls to the bottom of your list. A payment is a payment, right?
Wrong! Selecting a payment method is one of the most critical elements of the customer journey, and offering the right assortment of payment options is one of the most direct ways to impact your conversion rate.
Think of it this way: by the time a prospective customer has reached the payment phase of the checkout, they have already made a purchase decision.
They’ve found your site, chosen a product, selected the right size and color, etc. They’ve already done the main leg work.
At this point, any friction in the payment process can result in a lost sale. A customer is not a customer until they click that pay button. Your job as an online store is to make clicking that button as easy as possible.
By now, you've probably heard of “buy now, pay later” solutions, like Sezzle.
This new wave of alternative payment methods make optimizing conversions at this critical juncture especially easy. By allowing shoppers to pay for purchases over time (rather than all up front), this new payment solution has opened doors for consumers all over the world that fear the use of traditional credit.
What is a “buy now, pay later” solution?
Retailers have long provided shoppers the ability to pay over time with installments. “Buy Now, Pay Later” solutions offer a new twist on financing for Shopify merchants (and any online retailer) with simple installment plans.
Layaway options became popular in the United States after the Great Depression, when retailers began offering them as a way to generate sales with cash-strapped consumers.
In the old layaway model, shoppers would physically go to the store and put down installment payments for merchants to hold an item they wanted. Once a shopper had made enough payments to cover the purchase, the sale was complete.
But in the 1950s, a new innovation was introduced that allowed shoppers to pay over time: the credit card. Credit cards allowed shoppers to swipe, receive their items immediately, and then pay the credit card company back at a later date.
Credit cards quickly expanded to the nearly ubiquitous presence they are in retail today. Of course, the downside of paying with credit cards is that they are only available to those who are approved for credit; as many of us know, they also carry the threatening potential of exorbitant interest and fees.
Luckily, new fintech solutions offer a modern alternative to credit cards designed for the modern consumer. Sezzle, for instance, allows shoppers to pay for ecommerce purchases in four equal, interest-free installments.
With this solution, shoppers pay only a fraction of the purchase price during checkout and merchants ship their orders right away. The buy now, pay later platform then pays the merchant upfront for the full amount, less a small processing fee.
The remaining installments are automatically collected from the shopper every two weeks, with no interest or additional cost to the consumer. In short, buy now, pay later options provide a new way for shoppers to buy now, get their item now, and pay over time, at no additional cost.
Why offer a “buy now, pay later” option?
Buy now, pay later solutions are a proven way to increase sales for merchants. There are many benefits to adding an installment payment solution to merchants, including:
1. Reaching new customers
To maximize your reach, it's no longer sufficient to offer only credit card options. Credit cards are a great purchasing tool, but only for customers who have them.
However, the number of credit card holders in your target audience might be far fewer than you think; only one in three millennials own a credit card, according to a 2016 bankrate study.
There are many underlying factors driving this statistic — from the credit crisis of 2008, to mounting student loan debts for young people, to regulatory changes that made it more difficult for credit card companies to extend offers to those under the age of 21.
The key point for merchants is this: payment behaviors are changing dramatically for young consumers who have increasingly come to expect to be able to pay with a digital wallet, alternative payment platform, or an installment plan.
In fact, over 87% of consumers want a simpler way to pay over time that is not a credit card. By not providing these options, you are leaving potential money in the cart.
2. Increasing conversions
More than two-thirds of all online shopping carts are abandoned, according to the Baymard Institute. The second most commonly-cited reason was the cart becoming too expensive.
When customers see the total tallied up, they get sticker shock. Offering an installment payment solution that lets shoppers check out now and pay over time dramatically reduces cart abandonment rates.
On average, for stores that have added a buy now, pay later method, checkout conversions have increased by almost 40% for first time visitors. Reducing sticker shock of a one time purchase reduces cart abandonment, which means more sales!
Note: There are other effective methods for reducing cart abandonment, too.
3. Reducing return rates
High return rates are a pain point for merchants. When customers are consistently returning their purchases, it can add a lot of unwanted and unneeded stress to your store.
For merchants that use interest-free installments, return rates have decreased dramatically — some stores even drop down to 1% in returns by adding this alternative payment method. Through lowering these returns rates, buy now, pay later solutions can keep you and your customers happy.
4. Tapping into a millennial trend
Buy now, pay later solutions have exploded in popularity in recent months.
In other parts of the world, similar payment methods have become the predominant form of payment, with young shoppers mainly driving this trend. Young shoppers like the freedom of paying over time, without the financial pitfalls that credit cards pose. For them, they see these solutions as a kind of layaway on-demand or layaway for the digital age.
As more and more major brands accept these payment methods, the trend will only accelerate. Why not get ahead of the curve by implementing this solution for your store now?
Global expansion of “buy now, pay later”
The rapid customer acceptance and adoption of buy now, pay later solutions led to Sezzle’s first international expansion into Canada in 2019.
This market was chosen given the similar customer profile and online shopping habits of American and Canadian consumers. Much like their American neighbors, Canadian consumers have an aversion to credit cards and a desire for more flexible and lenient payment methods, making this move a logical extension of Sezzle’s platform.
This entry gives Canadian merchants the opportunity to offer a new payment solution to their customers. As Kappa Canada CEO stated, Sezzle is essential to delivering “flexibility in the buying process” to customers and gives them a platform to extend their brand reach.
This expansion also opens up an entirely new market of consumers. The market of Canadian online shoppers is growing at an unprecedented rate and is anticipated to increase by more than 25% by 2021, making this the opportune time to expand into this space.
This rapid global expansion of the buy now, pay later space has proved very beneficial to those merchants that sell in multiple countries or use differing currencies.
Note: If you have stores on Shopify Plus, learn how you can easily track your multi-currency sales with 100% accuracy.
The US is brimming with merchants that sell their products worldwide, making it difficult when a payment platform only serves US shoppers.
However, as the buy now, pay later space maintains its global growth, this problem will continue to diminish. Since its expansion in Canada, Sezzle has seen success with global merchants that now have the ability to sell to both US and Canadian consumers, in both American and Canadian currencies.
For merchants looking to expand internationally, it will be important to note the aggressive growth that the buy now, pay later space has seen in recent years and the rapid growth that is expected to continue moving forward. As this alternative form of payment expands, so will its acceptance into international countries, making it an innovative move for every type of merchant.
The best pay later solution for small businesses
Buy now, pay later payment solutions are a proven way to reach new consumers, increase conversions, and tap into what Visa has called a trillion dollar market. The right payment solution can have a dramatic impact on your sales and customer lifetime value (CLV / LTV).
As you consider which payment methods to use, think of the customer first. In the customer’s mind, the payment process is an extension of the store. A bad payment experience — whether it involves high interest rates or getting hit with hidden fees — equals a negative shopping experience.
Therefore, it’s important to integrate payment options on your store that fit with the values and customer experience standards of your high-potential customers and buyer personas.
This is a guest post by Kevin Wild of Sezzle, a payments disruptor that allows shoppers to budget their payments over time by splitting purchases into four interest-free installments over six weeks. By offering its ‘buy now pay later’ solution, Sezzle provides consumers with the financial freedom to buy what they want without having to fall back on high-interest credit cards.