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I have been observing the development of Buy Now Pay Later (BNPL) products in Europe for almost a decade and I always find it exciting to see how they have evolved. In the early days, when I worked for a regional online shop in Germany, I got to know a BNPL solution that is almost unthinkable today. Customers had to show full transparency in the checkout process by filling out a comprehensive form with various sensitive data, such as salary details. Then, if approved for a loan, the customer was sent to a post office or bank with the printed documents to confirm their identity and get loan approval. One can guess here how long the mailing process was delayed by this and how many customers abandoned the process much earlier. However, due to the then-upcoming World Cup and the planned sale of TV sets, a functioning online solution was needed and despite the complicated end-consumer process, the launch was successful as well as profitable.

"With Such Bnpl Offers, Customers In Online Shops Have The Possibility To Avoid An Immediate Debit Of Their Settlement Accounts And Thus Take Advantage Of A Short- Or Even Longer-Term Consumer Credit"

Such media disruptions are now a thing of the past; BNPL products have become more convenient and smarter for the customer. Average due dates have been increased, instalment solutions come in a wide variety of forms and BNPL solutions can be linked together in a few cases. With such BNPL offers, customers in online shops have the possibility to avoid an immediate debit of their settlement accounts and thus take advantage of a short- or even longer-term consumer credit. The variants of such a credit differ greatly in terms of term, interest rate and settlement modalities. For example, some providers offer an increased maturity or the possibility to pay the bill at a later date, or even the possibility of splitting a payment into several instalments.

If you look at the European markets, the acceptance is very different. In the DACH region, in the Nordic countries and in the Netherlands, I think BNPL products have been a must[1]have for retailers for some time, while acceptance in other regions is not yet as high. Nevertheless, a trend can be seen, that in Belgium, for instance, demand has risen steadily in recent years and a corresponding offer therefore seems to make a lot of sense. I think that this trend can also take hold in other regions and already offers various added values, depending on the industry. If you follow the development of BNPL products in the European area, you quickly come to the conclusion that there is a sales potential for every retailer and prospectively in every country. In view of the current economic situation, which means tensions for both companies and end-consumers due to price increases caused by supply chain bottlenecks or inflation, BNPL products are an effective way to counteract this from a business perspective.

BNPL products also give new customers in particular a certain amount of confidence. Worried about receiving defective goods or even a concern about not receiving the goods is diminished because the goods can be inspected before payment is made. Furthermore, customers can be helped out in the event of a temporary liquidity bottleneck, for example, if an essential purchase becomes necessary at short notice. However, BNPL products are also an enrichment for the end consumer in the higher price segment, if there is the possibility that an amount can be divided into several partial amounts and thus, for example, the premium variant can be financed instead of the standard model. Various studies have already proven that the introduction of BNPL products and the associated features have a positive influence on the conversion rate and generally increase the average shopping basket value - respectively in the aforementioned country regions. In practice, this works particularly well if the customer is made aware of a possible payment by instalments on the product page, for example.

Challenges can also be derived from this, specifically for small and medium-sized enterprises, which have to keep an eye on bad debts, fraud, dunning and collection rates, unless the risk is completely taken away by a provider. At the same time, it is important for merchants to find the “right” partner who does not go directly into confrontation with the customer in the case of outstanding debt but works out a satisfactory solution together with the customer. Customer communication is a significant success factor because if a customer has a bad experience due to poor process design, they are likely to switch to a competitor in the future. It has long been proven that customer satisfaction is a significant variable that increases customer loyalty. Due to the fact that some customers prefer individual BNPL products or have had bad experiences with certain BNPL products, it can be observed in the market that the first online retailers are already reacting to this and are now including more than one BNPL partner in the purchasing process, although the financial products are very similar. Finally, it is important to mention that these BNPL products are currently the subject of controversial discussions, as Millenials and Gen Z in particular prefer BNPL products, although all other generations are of course also relevant. Accordingly, some institutions are concerned with the development of the level of over-indebtedness of private households. Therefore, it is always necessary to check whether and to what extent new regulations have to be complied with. The expenses for any changes are likely to be incurred mainly by the provider, but from the retailer’s point of view, one should observe the developments and remain in proactive exchange with the provider in this regard.