Credit and finance for MSMEs: Even as the alternative payment mechanism Buy Now Pay Later (BNPL) helps merchants widen their customer base, the associated higher processing fees than those of credit and debit card issuers is one of its weaknesses, making it slightly more difficult for smaller businesses to adopt it, said market research firm Juniper Research in a whitepaper on BNPL on Tuesday. The most common way BNPL platforms make a profit is by charging their partner merchants a percentage of the consumers purchase price, as well as a flat rate per transaction.
Moreover, similar to merchant fees for the acceptance of credit and debit cards, BNPL firms also charge merchants a fee for accepting their payment option. The merchant and BNPL vendor agree upon an associate fee between 2 per cent and 8 per cent of the sale price at the point of sale (POS).
“BNPL offerings are more expensive for merchants, than credit cards, as there are higher processing fees associated. This makes it slightly more difficult for smaller businesses as, normally, profit margins make absorbing high fees less feasible,” the whitepaper read.
However, since a BNPL option is becoming more of an expectation by consumers at checkout, it is still a wise choice for businesses to offer the payment option to ensure as many potential customers are catered for as possible, it added. Also, a BNPL payment option to consumers significantly increases the average order value by an average of 45 per cent.
With the growth in e-commerce users and internet penetration, BNPL has become in retailers’ best interest to offer it to customers. According to Juniper’s latest BNPL research, consumer spending using BNPL platforms will reach $437 billion globally in 2027, rising from $112 billion in 2022. This sizeable growth of 291 per cent will be driven by escalating financial pressures from the rising cost of living, increasing the demand for cheap credit solutions.
In addition, the number of BNPL users will surpass 900 million globally by 2027 from 360 million in 2022. This substantial growth of 157 per cent will be driven by the anticipated economic downturn, which will increase the demand for low-cost credit solutions, the research noted.
In India, BNPL users are predicted to grow from 25 million in 2022 to 116 million by 2027. This is due to rising e-commerce usage and growing interest in international goods available through online retailers. However, it is important for vendors to build strategic partnerships with vendors in developing markets with established consumer bases, to successfully capitalise on this user growth and associated revenue, the whitepaper noted.
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