Let’s be real: Despite the recent macro-struggles of the Buy Now Pay Later sector, there is still no doubt that companies like Klarna, Affirm, and Afterpay have taken eCommerce by a storm. The innovation of further democratizing the concept of credit, and moving it into online checkouts in a seamless and near instantaneous way, is pretty brilliant.
And on the surface, the value proposition for BNPL makes a lot of sense. Increasing consumer spending power via credit (aka an IOU) is a strategy that’s as old as time. Why wouldn’t a shopper want the option to pay less (or nothing) now, and the rest later? And still get to enjoy their purchase in the meantime! With interest rates as low as they were for as long as they were, it was perfect timing to launch into the market a modern, challenger credit company like BNPL and leverage an opportunity to ‘rebrand’ credit to a wave of online consumers.
But now that we’ve run head-first into a recession, and with money no longer being cheap to borrow, it seems obvious that this BNPL value proposition may need a re-think. How much longer will BNPLs be able to offer a large portion of their consumers 0 or low% interest loans on everyday eCommerce purchases, and still chart a path that is high-margin profitable?
Either the interest terms offered to consumers will need to change, or the BNPLs will need to rely on a higher percentage of consumers running late on their payments – or a combination. Either way, it makes us nervous: Gen Z is a key demographic who use BNPL, with at least 25% not understanding their purchase is actually debt. Further pushing a structure with known debt misconceptions amongst young people does not seem ideal. Another option would be to raise prices with the brand via an increased % transaction fee on BNPL purchases -- but from what we hear on the ground, a mix of market saturation + BNPL being seen as a “nice to have” vs business-critical for brands means there isn’t enough price elasticity for BNPLs to work with.
Meanwhile at Purple Dot, we’ve been considering for a while on whether to integrate a BNPL provider as a pre-order payment option. It’s a top feature request from brands, although rarely a dealbreaker, which is always the trickiest to prioritize amongst a small team. With our Platform pre-order solution, brands can charge shoppers 100% upfront for pre-orders in a fully FTC compliant way. And thanks to solid conversion, this charge upfront pre-order model is a huge win for brands. Not only does it convert highly committed shoppers with lower returns rates, but brands can access sales earlier too – to fund POs for example.
So, we first decided to dive further into this BNPL feature request with our customers. And what became clear is that it was a hunch from brands that some shoppers may be uncomfortable – or unable – to pay 100% upfront for a pre-order that they may need to wait a few weeks to receive. And why should they? Shouldn’t shoppers be able to Buy Now and then Pay Later for pre-orders? Would that increase conversion? Oh, but wait! As a brand, I still want my pre-order funds upfront… so maybe that doesn’t work.
This feature discovery from first principles was eye-opening – and so worthwhile.
First, if we were to integrate a BNPL, why should a shopper risk immediately going into debt for a pre-order – a purchase that they aren’t actually receiving just yet? It didn’t make sense, regardless of the moral issue on whether or not shoppers understand that they are taking on debt. Sure, we could possibly delay the first BNPL payment to when the pre-order actually ships – but then the brand can’t benefit from *any* funds upfront, which is a key pre-order value prop for our brands. So, that didn’t seem like a great option either. It seemed messy.
But the core problem brands wanted to solve still resonated: Can we increase shopper trust and conversion with pre-orders by not charging 100% upfront AND can I still access pre-order funds early for my business?
Then it clicked. We don’t need a BNPL to deliver that capability. We just need the ability to split the pre-order payment for shoppers at checkout – where shoppers pay a % upfront at checkout, and the rest is auto-charged on ship. That way, the pre-order is still paid in full before it ships, meaning no debt for the shopper as with BNPL. BUT the shopper can still benefit from spreading the payment over time, which is ultimately what our brands wanted to enable. And, by still charging a % upfront for the pre-order, brands get that confident shopper commitment and can still access pre-order sales to fuel their business.
That’s why we are excited to share that today we are launching Split Payments in Purple Dot. Brands on our Platform solution can now let shoppers split their payment for pre-orders – with options to charge 10% upfront and 90% on ship, or a true split of 50% upfront and 50% on ship. And regardless of the structure that brands choose – whether charging shoppers 100% upfront as now or using our new Split Payments -- brands can still access paid pre-order funds early, as always, in a fully FTC compliant way.
At Purple Dot, we are more convicted and committed than ever to be a core part of helping brands and consumers not only survive this recession, but thrive. We believe that Pre-orders with Split Payments is truly a recession-friendly model for both brands and their shoppers: Shoppers get flexibility to spread the cost of a purchase during financially tough times AND they can do so without the explicit risk of going into debt. Meanwhile, brands can access those pre-order sales with compliance to fuel their business and get the same benefit they’re offering their customers – no risk of debt.
Want to offer Pre-orders with Split Payments to your shoppers? Get in touch today.