HOW DOES BNPL WORK?
6 APRIL 2021
How does BNPL work? In the case of Klarna, it has three main components, as follows:
- Pay in 30 days – customers pay after trying the product. Here the customer does not pay a fee, unless they are late, but the merchant does
- Instalments – customers can pay in four equal instalments and friction is reduced to just one step, while merchants pay discount fees of 2 to 6 percent of the purchase price
- Financing – customers get to finance larger purchases over 3 – 36 month plans
Higher sales activity follows, says Klarna, with:
- Merchants seeing up to a 68% increase in average order value with instalments
- Average order values for retailers offering financing increasing 58 percent, and
- Retailers experiencing a 20 percent increase in purchase frequency for customers who pay in 30 days
On top of all that Klarna reckons that 44 percent of customers would have abandoned purchases if a pay-later facility was not available.