What is BNPL

Buy now, pay later (BNPL) is a popular payment option that allows consumers to buy goods and services and pay them off in instalments over time, usually without interest or fees. It is very popular. This concept isn't new. The traditional 'layby' services involve paying for goods in instalments too.

So now we are looking at BPNL changes.

The federal government has announced plans to regulate BNPL over community concerns that BNPL has led to over-indebtedness, particularly among low-income households. I and most of the country agree that these concerns are warranted, and changes must be made.

How will the new regulations affect the BNPL industry and consumers?

Firstly many banks offer similar products to BNPL. These are unaffected by these changes. Much of the decision to use BNPL today has moved from the merchant to the customer. For this, we can expect little change. Also, we do not know yet what the specific changes will be. They will likely include restrictions on BNPL use, particularly with low-income people. Also, some people may be excluded from using BNPL products. 

Despite the changes, BNPL is likely to grow in the coming years but is expected to be slower than in recent years.

What is a layby, and why is it still relevant?

Layby has been around forever and has never gone away, despite the emergence of BNPL. Almost all organisations, big and small, offer layby as an option for their customers. I would not get rid of it.

BNPL vs LayBy

For the merchant, they do similar things. They help customers pay for their purchases over time which they cannot afford now, and lock in a sale now.

LayBy

Our point ͏of sale ͏software has a mighty layby system,͏ which many clients use. It does everything in laybys.

-The goods are given to the customer only after ͏the complete payment is made; this is a problem often.

-The pro͏posed changes wit͏h BNPL will lead to some people having no or reduced access to BNPL. Soon they have no choice but to use Layby.

-Layby does not need ͏a credit check or͏ a bank account, which makes it accessible to anyone.

-Any ͏product can be put on Layby.

-Requires several trips by the customer and handli͏ng by the shop, which can͏ cause administration headaches.͏

-Layby customers are generally pre͏tty ordinary customers.

-Customers ar͏e more likely to change ͏their minds and can͏cel the layby because it can take time.

-Extra fees can be charged to the customer for handling laybys; for example, BigW charges a $15 non-refundable service fee for each new Layby. Why would consumers take a layby with a fee when they can get a BNPL without fees?

BNPL

-The merchant͏ does not have to ͏wait to get paid.

-BNPL often͏ restricts products th͏at can be sold.

-BNPL promotes merchants, giving them customers they would otherwise never get. Plus, a BNPL buyer tends to be a good customer. A study showed that a shop before and ͏after it accepted BNPL. To the retailer, it gave many customer͏s that they would otherwise not have had as the BNPL did ͏extensi͏ve marketing to their customer base. Their market base is over a million people. It did increase customers' basket size, as a typical sale for a ͏BNPL is about $150,͏ which is well above most of my clients' aver͏age basket sizes.

Here ͏is an analysis of customers shopping͏ before ͏the͏y went to BNPL and after ͏in the same shops.

BNPL fees

The BNPL company takes about 5% of the sale from the merchant. BNPL company generally does not allow administration fees by the merchant to cover the cost. Items with meagre margins cannot be offered with BNPL.

It is expected that the new requirements for credit checking will cost many of the BNPLs. If costs go up with BNPL, these will likely be passed on to merchants. BNPL now makes most of its money from the merchant. It will be challenging to pass these costs on to the consumers because of how BNPL works.

Conclusion

Both BNPL and Layby are popular payment options that offer many benefits. Layby is still relevant in Australia because it provides benefits that BNPL does not.

There is an old saying, "There is no going back."

Although BNPL companies' share prices and valuations are down, their products in the marketplace are still as strong as ever. Growth in BNPL, although slower, is expected to increase. Also, the market is expected to grow as many players like banks and apple are moving into this space. Whether the existing BNPL companies can exist as viable stand-alone businesses remains to be seen. Most feel these BNPLs will soon be absorbed into traditional finance companies and banks; however, the customers will not be significantly affected and will continue to buy as usual. What may change is that the primary decision to use BNPL will shift away from the store. The CBA system does not have any store input.

The belief that many retail experts had was that laybys would become more popular has not happened. Consumers are *NOT* turning back to layby, nor do I see retailers keen on going back to layby either. To a retailer, a layby sale, unlike a BNPL, is a messy problem sale. It has high administration costs, legal issues and high risks of cancellation. Besides, why should the retailer share the risk of bad debts if they can avoid them? Also, most feel that a typical BNPL customer spends more than a regular layby customer, so they want more BNPL sales rather than layby. Also, a BNPL is vested in pushing its client to buy, and they do bring customers; no one is pushing a layby customer to come.

Our advice is unchanged, offer layby for those that want it; your POS System can handle it, but make sure you can take BNPL. 

Do not create unnecessary problems for your customers to pay.

One caveat here, you need an item to cover your BNPL fees, plus BNPL often does put conditions on what you can do, e.g. some items cannot be sold under BNPL. 

Let us discuss the BNPL for SMB retailers, with Afterpay the biggest, Zip second and then a lot more. Most retailers are not keen on it but accept that the public often loves BNPL over traditional credit cards. Why not? Usually, they do not pay any surcharge as the BNPL are vocal about no-surcharges. The public also does not pay many fees as the merchant pays them. Besides, many people cannot get a credit card anyway, e.g. they are on a low income, insecure at work, and/or have a bad credit rating. 17% of BNPL customers stated they would cancel the purchase if they may not make the payment utilizing a BNPL service.

BNPL encourages people to spend more.

This results in the merchant having to pay high fees on sales except maybe in Lay-bys. Lay-bys are probably the most significant use by retailers in my market space for BNPL.

The big plus is that if you are dealing with a BNPL like Afterpay, they promote your business to millions of people. It helps you get a customer you have never had and would never have had to buy something in the shop even if you are paying high fees.

A smaller percentage of something is better than 100% of nothing.

We switched our support from Zip, as our clients seemed to do better with Afterpay.

The bigger the BNPL is, the better. Besides, from an administration view, the fewer suppliers for BNPL, the fewer headaches in the shop.

So what is happening now, I think, is a good thing. The last 12 months have seen some massive falls in share prices for BNPL. Afterpay had a 58% drop (see graph below), and the next biggest Zip was about 87% drop. The rest are following pretty much the same pattern. The problem appears to be that BNPL can't charge enough fees to cover bad debts and borrowing costs, plus the big banks are moving into this space. This is driving the share price down. If it goes down like this, we often see a period of consolidation when those with money and a desire to expand try to grab others. This is what we see happening with Humm here. The shareholders have a choice as their business has been unprofitable for the past four months. They are now looking at a share price declining more if they do not sell.

There have been some changes in our Afterpay integration. We followed up on it, but there are no plans to fix it, so you will need to switch to this method.  Clients of ours doing this have reported that it is easy to use and fulfils a need for many consumers.

Do you need a BNPL Solution now?

Yes as the era where customers paid in cash or with a credit card is over.

* Currently, 20% of Australian shoppers have a BNPL account. 

* Signs are that BNPL is expected to continue to grow.

* BNPL is a proven lead generation tool,

* Offering BNPL is much better than doing layby. The sale is settled immediately, with much fewer hassles.

* It does help customers make large-ticket purchases as it splits the value of the buy into convenient instalments.

You to ensure that you do lose out on customers because you do not have the means to accept their payment for a sale.

But the fees are a problem of about 6%, so if you need a BNPL solution, you need to review your usage policy. 

What next for BNPL?

We can expect BNPL to increase.

* As BNPL is still experiencing high growth.

* With these times, many people are looking for new lines of credit.

* More companies are moving into this space, including big banks and many traditional money traders, e.g. Paypal. The great plus here is that these new solutions have none or much lower fees. The big banks do not even give the merchants a choice. It is on the EFTPOS machine for the customer to select this option. Plus the banks are determined to get into this space, and they will, if necessary, run it at a loss to keep market share. 

Conversely, if the Reserve Bank gets its way, they will change the rules to allow merchants to pass on the fees that BNPL providers charge retailers to consumers. What will the customers do if they get levied a 7% fee by the merchant?  I expect that many customers will drop BNPL if these fees are levied. 

The more ways customers can make purchases through your company, the greater your earning potential.