Although the rise of the internet has ushered in massive changes in shopping behaviors for everyone from teenagers to grandparents, methods of payments have actually changed very little. According to the Observer, despite predictions that ecommerce will be a trillion-dollar business in the near future, “one out of every three dollars spent online is charged to a traditional credit card — a number that jumps to one out of every two dollars when including spending with eWallets, like Apple Wallet, Samsung Pay and Google Pay, which are essentially nothing more than secure digital purses linked to credit cards and charge cards like Visa and American Express.”
However, traditional ways of paying could be changing with the emergence of ecommerce deferred payment platforms offering no- and low-interest payment options that could resonate with retail brands looking for increased engagement with consumers. These deferred payment platforms go by many names including “post-pay,” “buy now, pay later” and “digital layaway.” Regardless of the name, these payment solutions allow online shoppers to pay for items over weeks instead of at the time of purchase.
Consumers With Lean Bank Accounts May Prefer Deferred Payment Options
Although still in the very early stages, analysts believe post-pay methods could disrupt the payment sector by offering consumers the option of dividing purchases into smaller, manageable, no-interest payments that still allow them to take possession of their purchases right away. From the Observer, “The big names in this sector are probably unfamiliar to most Americans with names like Affirm, Afterpay, Klarna, SplitIt and Sezzle, but many industry experts posit that some of these companies could likely emerge as the Visas and Mastercards of the future, responsible for a significant portion of all online transactions both in the U.S. and globally.”
With many Americans living paycheck to paycheck, post-pay could offer an alternative to traditional payment methods and provide retailers an option for cash-strapped consumers who don’t want to use credit cards.
Deferred Payment Plans Are Seamless And Easy, But Retailers Must Consider The Best Options For Their Audiences
The seamless quality of deferred payment tools make them very appealing to consumers, but retailers must choose the right payment platforms for their audiences. For retailers with audiences who typically pay with credit or debit cards, going all in with five different deferred payment platforms is likely unnecessary. However, one trusted no-interest or fixed-payment method could be a better choice for this more traditional audience.
Several credit card companies, including American Express, have entered the deferred payment sector, and some consumers may be more inclined to use a brand they trust.
Third-party deferred payment platforms take on the burden of the consumer payments, so there is no cost to retailers in the event of non-payment. But the typical merchant fee for post-pay services is approximately 4%, compared to 1.5%-3.5% for credit cards.
Consumers Who Use Deferred Payment Tools May Be More Likely To Shop Again
The benefits of deferred payment platforms could include fewer abandoned carts, more repeat customers and increased revenue in the long run. Afterpay, one of the most popular payment platforms, has 3 million active users in the U.S. and more than 9,000 retail partners, many who report experiencing an average 3% basket size increase since 2018. Deferred payment tools tend to resonate with younger consumers using mobile and are particularly popular for lifestyle and fitness brand purchases. Brands already searching for the most seamless, turn-key ways to reach consumers may find deferred payment tools a viable, forward-thinking solution.
“Although the merchant will generally pay a higher fee to an alternative payment platform than is typical for credit cards, the growth in basket size and the ability to move more inventory at full price more than makes up for this added expense; retailers would rather sell merchandise now than have to unload it in three or four months at 50 percent off. The math is very compelling,” said Corey Davis, Managing Director of Financial Technology Investment banking at BTIG. Balancing new, innovative fin-tech with the possible ROI is definitely a part of the equation for brands deciding on deferred payment platforms.
For brands debating which deferred payment platforms make the most sense for their needs, the decision involves a number of elements including cost, trustworthiness and audience buy-in. As ecommerce grows increasingly dominant, new payment methods will likely scale to meet demand, and brands should be prepared to make the best choices for their ecommerce businesses.
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