There is no doubt that consumers are constantly looking for easier, faster and more innovative ways to purchase products, whether online or in a physical setting.
An area that has really helped to grow our sales and customer base is the “pay later” payment options, allowing customers to receive their purchase upfront and pay later over time, usually with interest-free and flexible repayments.
Pay-later options are great for customers who may not get paid every week, or younger people who may not have a consistent flow of income.
Buy now, pay-later options are an attractive incentive for many customers, because rather than having a lump sum payment taken from their account in one transaction, they can make smaller payments and pay off the amount over time in installments. This can be spread out over three or four payments or by a minimum value each month depending on the particular pay later provider.
One of the main benefits of the pay later model is that it generates more sales revenue. It does so by converting customers who would have otherwise abandoned the cart into purchasing. It helps to reduce the friction that can occur during checkout and essentially lets customers purchase products who wouldn’t have been able to otherwise. It’s great for customers who may not get paid every week, or younger people who may not have a consistent flow of income — which in turn is particularly good for the businesses selling products!
From our data we can see that customers using pay-later options tend to spend more per transaction and over their lifetime, while also making purchases more frequently.
Since adopting two of Australia’s leading pay-later providers including Afterpay and Zippay, we’ve noticed a 22 percent increase in sales across the board, with an increase in average order value by 10 percent.
Our data shows that customers prefer to pay with Afterpay over any other payment method we offer. It’s the most well-known in Australia, and since enabling the program in October 2019 after the Australian division finally opened it up to the adult industry, it equates for over 35 percent of our total sales, taking the lead over our traditional banking merchant terminal and PayPal.
The increase in sales growth and ease of payment for our customers certainly makes up for the .30c plus 4.1 percent merchant fee that Afterpay charges us for their service, and the .15c plus 5 percent fee that Zip charges.
There is a downside of offering pay-later options over more traditional payment options however, with the merchant fee almost double in many cases. The merchant fee for both our PayPal and Card processing accounts are only about 2 percent.
It can also mean that customers who would have been happy using PayPal or card may choose a pay-later option instead, essentially taking an extra 3-4 percent off your margins. From our data, the benefits of increased sales volume, frequency and lifetime value as well as ease of use for the customer outweighs this extra cost.
Since enabling both pay-later options, we’ve noticed card payments including Visa, MasterCard and Amex, as well as PayPal have reduced by over 20 percent. This data alone shows customers prefer the ability to pay for their purchase later over time with Afterpay and Zip rather than upfront at the time of sale.
Adopting Afterpay was an easy choice for us, as they have the largest customer base in Australia and very flexible payment terms, with starting limits at $1,000 and soon to be $2,000. Zippay is second place with a growing market share and very affordable payment options to the customer. We’ve found these two pay-later options complement each other nicely.
Pay-later options are even more appealing to us as it reduces and in most cases eliminates the risk of chargebacks, as the pay-later provider inherits that risk instead. There is nothing worse than seeing a Visa, MasterCard or Amex chargeback on your account!
Each pay-later provider has systems in place to communicate with the customer about their purchase and set up suitable payment schedules and reminders so they can easily manage and track the progress of their payments. Many have a portal and/or app that customers can easily log into and manage everything related to their purchases and payments.
Pay-later options are essential for any business looking to grow and improve their sales and customer base. Online stores can easily offer this through a pre-made module or custom integration, while brick-and-mortar stores can offer in-store incentives and programs.
Suppliers and manufacturers can also consider this option to help ease cash flow restraints of customers and other barriers of sale. Making it as easy as possible for the consumer to purchase and pay for their order no matter what stage they are at is key to any business.
If you’re a merchant, it’s important to mention pay-later options throughout the many stages of the customer journey, not just at the checkout — whether that be on promotional materials, important pages throughout the website or through in-store advertising and incentives.
Before choosing which pay-later options are right for your business, it’s important to do your due diligence first. Each country has a variety of different providers all with their unique benefits and selling points, so make sure you investigate each one to discover their particular features, fees and integrations and how it can complement your business.
It’s important to choose the right payment options that work for your business and can provide the most value to your customers. Like anything, always check your data and compare how each is impacting your sales growth and bottom line.
Don’t over complicate things with too many choices, as over selection of payment options can be confusing and a barrier to the sale in itself.
As the pay-later industry continues to grow, it’s important for each merchant to stay up-to-date with the latest providers, offers and terms to see how each can benefit their business or not.
In conclusion, our data shows that pay-later options:
- Have increased sales by 22 percent
- Increased average order value by 10 percent
- Reduced PayPal and card sales by 20 percent
- Allowed customers to purchase more frequently
- Reduce the risk of chargebacks
- Help to recover abandoned carts
The real question is, can you afford not to offer customers easier and hassle-free ways to pay?
Matt Smith is the managing director and founder of CherryBanana.com.au, an Australian online retailer of sex toys and adult products.
