BNPL vs. Credit Cards: Which is the Better Option for Modern Merchants?
In the rapidly evolving world of commerce, merchants are constantly seeking the most efficient and customer-friendly payment methods. Two prominent options that have emerged are traditional credit cards and the newer Buy Now, Pay Later (BNPL) services. Both offer unique advantages, but which is the better choice for today's modern merchant? Let's dive in.
BNPL services have gained significant traction in recent years, especially among younger consumers. These services allow customers to purchase items immediately and pay for them over a set period, often without interest if paid within a specific timeframe. Some popular BNPL providers include Sunbit and Klarna.
Advantages for Merchants:
- Increased Sales: BNPL can attract customers who might not have the immediate funds but are willing to commit to future payments.
- Attracting Younger Demographics: Millennials and Gen Z, who are often wary of accumulating credit card debt, are more inclined to use BNPL services.
- Reduced Cart Abandonment: Offering a flexible payment option can reduce instances of customers leaving items in their cart without completing the purchase.
The Time-Tested Credit Card
Credit cards have been a staple in commerce for decades. They offer consumers the ability to buy now and pay later, with the added benefit of rewards, points, and building credit history.
Advantages for Merchants:
- Widespread Acceptance: Credit cards are universally recognized and accepted, making transactions seamless.
- Security: Credit card companies invest heavily in fraud detection and prevention, offering a layer of protection to merchants.
- Predictability: Merchants are familiar with the fee structures and processes associated with credit card transactions.
The Cost Factor: Interchange Fees and More
One of the primary considerations for merchants is the cost associated with each payment method. Credit card companies charge merchants interchange fees, which are typically a combination of a flat fee and a percentage of the transaction1. These fees can vary based on the card type and the bank issuing it.
BNPL services, on the other hand, often charge merchants a flat fee or a percentage of the sale. While these fees can sometimes be higher than credit card interchange fees, merchants might find the increased sales volume and average order value make up for the higher costs.
Which is Better for Modern Merchants?
The decision between BNPL and credit cards largely depends on the merchant's target audience and business model. For businesses targeting younger demographics or those selling higher-ticket items, BNPL might be a more attractive option. It can boost sales and offer customers the flexibility they desire.
However, credit cards remain a universally accepted payment method with established processes and security measures. For merchants seeking predictability and a broad customer base, credit cards might still be the preferred choice.
In an ideal scenario, offering both payment options can provide merchants with the best of both worlds, catering to a diverse customer base and ensuring maximum sales potential.
The landscape of commerce is ever-evolving, and staying updated with the latest payment trends is crucial for merchants. Whether it's the traditional credit card or the innovative BNPL, understanding the pros and cons of each can help merchants make informed decisions, ensuring profitability and customer satisfaction.