How To Build Loyalty With BNPL
If you can afford a minute to talk about “Buy Now, Pay Later” (BNPL), read on. Because if you thought that by 2022 there could be little else new in the world of payments, and you’re just finding out about BNPL…well, your initial assumption isn’t exactly wrong.
That’s because the underlying concept behind BNPL isn’t new. BNPL is really just the digital translation of an age-old payment system dating back to the 1840’s. In simple terms, it’s the classic “installment plan” system made fresh and accessible for modern audiences, allowing purchases to be repaid as a series of contributions over time as opposed to the single lump sum requirement of traditional purchases.
Why is this re-popularized format gaining so much traction? The main drivers appear to be Gen Z and Millennial customers, who either can’t yet obtain credit cards or choose not to. This shouldn’t exactly be a surprise; recent research demonstrates clear hesitancy younger demographics express toward credit cards, with only half of Millennials even owning a credit card at all. These demographics either can’t get a card due to logistical challenges such as the CARD act, personal finances, or a growing sense of mistrust directed towards these institutions.
And therein lies both the opportunity and challenge for BNPL providers. While the novel platform — currently exploding throughout the industry — has a relatively clean slate, all it takes is a few bad apples to tarnish its reputation amongst customers. But fear not, if you’re a loyalty vendor looking to integrate BNPL into your platform, there are a few tangible actions you can take to help stay on the “good side” of BNPL.
Reward “On-Time” Payments
The inherent appeal of BNPL is installment payments over time. But under this system, there could be the temptation for customers to lapse on payments or fall into a similar negative pattern of repayment behavior which challenges the state of credit ownership in the first place.
The solution for loyalty vendors is to reward the act of “on-time” payments, building positive attitudes toward BNPL while simultaneously empowering general program usage.
That’s why Klarna, a Swedish fintech specializing in BNPL solutions, is introducing a new rewards program that gives Klarna users points each time they make an “on-time” payment on a purchase. It will live as a part of their general rewards program with more than 4 million members in the U.S. and Australia. Klarna program members can redeem their points in an app for discounts at brands including Decathlon, Caffe Nero, River Island and more; members also get exclusive deals and early access to the latest merchandise from curated retailers.
The strategy of rewarding “on-time” payments is a step in the right direction to help BNPL distance itself from the challenges facing the credit card sector:
“With our rewards program, we help consumers get more out of every pound they spend and reward responsible use of buy now, pay later by putting the emphasis on repayment, not purchase,” suggests Alex Marsh, Head of Klarna U.K. “This contrasts with traditional credit card providers which encourage irresponsible spending by rewarding consumers for making a purchase but then charge double-digit interest when they can’t afford to repay their bill at the end of the month.”
Offer a “Pay Now” Option
Just because it’s called “Buy Now, Pay Later” doesn’t necessarily mean customers can’t pay right away. In fact, many BNPL providers pride themselves on offering an option for immediate payment. Under this format, customers may feel even more confident that they can responsibly managing their own debts and spending.
As part of its expansion plan, Klarna is introducing a “Pay Now” option, providing customers the choice to earn rewards by paying the full amount of their purchase immediately. Whether customers will actually prefer this option over the installment payment plan remains to be seen. But just by having access to it, Klarna and companies like it can build a bedrock of trusted interactions which will help reassure customers that BNPL is a viable format for their co-existence with the brands they love.