The Afterglow of Afterpay: Exploring Options for Customer Payments
Debt. It’s the American way.
Becoming an online merchant means you understand your customers may need flexibility in paying for their purchases. Credit cards have filled that need, but in recent times, and on the heels of an economy-crushing global pandemic, a growing number of consumers either face limited access to credit, or are planning for a future purchase and are hesitant to run high balances on their existing cards.
As a small- to mid-sized merchant, you might want to tap into the increasing number of alternative financing options available to entice purchases, also called “afterpay” services. Each has a slightly different interface and set of options, but all are predicated on the ability to soften the blow of large (and even modest) consumer purchases.
Fixed transaction fees represent the revenue stream for these entities. To that end, it’s not altogether different from a bank installment loan. Collecting is key, but experts say the dollar amount of these purchases is unlikely to cause customer defaults. Klarna is a high-profile consumer payment portal allowing for payment-splitting, and there are others – with still others springing onto the scene. Here’s how it works:
Your customer sees a product on your site they can’t live without, but has no ability to front the cash or use a credit card. The afterpay model steps in as a third party, allowing participating merchants to process payments through them as the customer provides billing information not to you, but to them. Any guilt over adding to the spiraling debt crisis may be relieved to know that the most common option for consumers is to divide their payments over four months only, avoiding the seemingly endless cycle of drowning in interest over a period of years.
Like a mortgage, but in micro mode
Klarna and its doppelgangers facilitate semi-major purchases such as computers, cameras, and even riding lawnmowers. But they also devise payment plans for tennis shoes, cosmetics, and less expensive home goods. This makes for an attractive option as customers face a real need to acquire something; to buy a graduation gift, cover a window, or acquire a printer.
There is nothing new or radical about this model. Back when there were only a handful of TV channels available, home shopping networks were in full swing. In-house financing (underwritten between the merchant and its bank) greatly limited defaults. Revenues for after-pay services can be substantial as long as customers behave and do not overspend or close accounts. And payments are not usually monthly, but rather take place every two weeks. In some cases, the merchandise is not delivered until the first (second) payment is made. (In other words, at the time a customer enters into a payment arrangement, the first installment is due immediately.)
Among companies offering these tempting third-party payment services are Affirm, Sezzle, SplitIt, Zip, and GoCardless. Even cash-flush mainstream players such as Amazon and PayPal are seizing the opportunity for proprietary plans that eliminate third parties.
Check out the various options and chat with their reps to see if offering an after-payment service will escalate your business. Depending on your volume, you may discover it’s an affordable way to greatly expand sales. They include: