【Financial Knowledge】Buy early, enjoy early and pay later! | Talk about BNPL's business model

What is BNPL Buy Now Pay Later?

With the outbreak of the epidemic for a long time, many areas have been closed to unblocked and then closed again. It seems that people's living habits have changed a lot in recent years. Everyone starts to think about avoiding crowds in department stores. Hope to be able to shop at home. In fact, with the development of science and technology in recent years, online retail, electronic stores and fast and efficient logistics have driven the entire online shopping market. Because of the rapid rise of e-commerce, a new type of financial services is emerging. Rapid growth and popularity, that is " Buy Now Pay Later " ( BNPL ), if you haven't read this term, don't feel that you have missed something, here is what BNPL is and using BNPL services When, how do the various roles involved work, is it beneficial to the user without any harm?

When you see Buy Now Pay Later, it can be understood in the vernacular as spending first and then paying. I think most people’s first instinct should be to swipe a credit card! In fact, the BNPL service is a service that can be used without a credit card. As for whether user review or credit score is required, it depends on how the companies that provide the BNPL service set the standards. In addition, swiping cards and BNPL are very important for users in cash flow processing. It may not feel like it, but for merchants, there is no need to wait for the credit card company to process the bills, and they can get the money directly, which can greatly improve the efficiency and convenience of the use of funds.

In short, we can regard the BNPL service as a kind of small loan consumption behavior that can be bought early, enjoyed early and paid later. When using it, we should pay special attention to the annual interest rate that will be charged for the loan, and if the payment is not made before the next payment due date The amount due will also incur penalties.

However, several mainstream companies that provide BNPL services have different practices for this kind of small loan. For example, Affirm needs to review the user's credit to determine the amount of users that can be provided, while Afterpay can be used without any credit score. Different strategies are also used for profit, which will be mentioned in subsequent articles in this part.

Three roles involved in BNPL

BNPL service will involve three roles, namely "BNPL service provider", "merchant" and "user". We need to analyze their respective interests or risks for these three roles, after all, they all have enough The incentive is willing to join this service, this business model has a chance to succeed.

1. User

For users, the reason for wanting to use this service is very simple. When shopping, you don’t need to think about the depth of your wallet, you can buy it early and enjoy it early. You can buy the product back and use it first, according to the two companies Affirm and Afterpay claim. As a result of statistical analysis, some merchants that import BNPL can make consumers buy about 20% more things when shopping, and make a single consumption amount about 20%. It seems that such an idea really leads to impulse shopping. The reason!

For subsequent payment matters, according to the services provided by different BNPL service providers, there is an opportunity to obtain an instalment payment of 0 interest rate, but it should be noted that there may be additional penalties for late payment, and the use of BNPL services is not like a credit card. Bonus points.

2. Merchant

According to the results of the statistical analysis claimed by the BNPL service provider, the order volume of the merchants who introduced the BNPL service will increase by 85% every year, and the purchase volume of those repeat customers who have consumed will also increase by 20%. The incentive to join the language will be to make it easier for consumers to do consumption that may not otherwise be possible, and to create more additional income for merchants.

Generally, after using a credit card, the merchant will not receive the money immediately because it will take some time in the accounting office, and if a customer requests a refund or is even defrauded, the merchant also has to deal with some additional procedures for the credit card. For BNPL services, when the consumer completes the consumption, the BNPL service provider will immediately send the payment to the merchant, which means that the subsequent accounting matters are the problems of the consumer and the BNPL service provider themselves.

Perhaps because the BNPL service will allow merchants to receive money when the consumption is established, it will need to pay a commission of about 3% to 6%, which is much higher than the commission drawn by ordinary credit cards, but if it is really as the statistics show. It seems that if you really get more income after joining, the commission that the merchant needs to pay seems to be very cost-effective.

3. BNPL Service Providers

The gameplay of several BNPL service providers I have seen so far is different. I think it may be because everyone is still exploring the feasibility of this business model. Here we take Affirm and Afterpay as examples to let you know more about the possible sources of profit for BNPL service providers.

Affirm's main sources of income are mainly divided into two parts, from users and merchants. They will extract annual interest rates ranging from 0% to 30% from users, and this standard depends on the financial and credit status of users. In addition, they will not charge users any more fees, and there will be no penalty even if they are late; for merchants, each time a transaction is completed, about 2% to 4% of the fee will be extracted as a service fee.

Afterpay does not consider the user's credit status at all, and the money borrowed by the user using the BNPL service will not charge any interest. Instead, if the user fails to pay the corresponding amount within the specified repayment time, there will be a delay. The penalty for paying, this penalty can be up to 25% of the original loan, which means that Afterpay does not review the user's financial situation, some consumers are fined for accidentally overspending and unable to pay off the money. Statistics in 2020 According to the data, the penalty income brought by these late submissions is as high as 51.8 million US dollars, which can account for 13.25% of the company's total annual revenue. It is really amazing, but I think this predatory lending strategy should cause some controversy. ; For merchants, a fee of about 3% to 6% is extracted, plus a single fixed rate of 0.3 US dollars as a service fee.

For more details, please refer to this website , which has a very detailed analysis of the business models of various BNPL service providers.

Epilogue

This time, we introduce BNPL's services, including their business models and the roles of all parties involved. For us users, when using this kind of small loan service, the most important thing is to evaluate our own financial resources, and do not let ourselves fall into the cycle of debt because of impulse shopping. If you have a good plan, Then this kind of financial service can also be a good tool on our financial planning road.

Although I rarely hear anyone mentioning BNPL around me, and the articles are also about some American companies, in fact, some companies have started to deploy related services in Taiwan. For example, “Chairase Holdings” started in 2018. Provide the service of "Zhongrent zero-card installment", maybe I can write an article about the BNPL experience to share with you after I research and try it out.

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See you next time o((>ω< ))o~

Original link ITechNote technology essay