Adding Afterpay To My Business

Well hello there! Catherine Langman here with you on the Productpreneur Success Podcast! Welcome to the show if you’re a new listener, and welcome back if you’re a long-time listener! You can listen to this Podcast episode over at

Today on the show we’re going to try and answer a question we see being asked ALL the time:

And that is – should you add Buy Now Pay Later payment options onto your online store? 

As always, the purpose of this podcast is to share information, insights and experiences all about building brands, especially when it comes to growing thriving online stores.

We test a lot of different things in our business and with our clients, because frankly, eCommerce is not a business model that stays static for longer than 5 minutes. There will always be new opportunities to consider, and there will always be strategies that worked great at one point and then stopped working and we need to find new ways of doing things.

So I love it any time we’re able to share information that sheds some light on strategies or tactics that might help you increase your website conversion rate, increase revenue and profits.

This episode will be a bit of a quick one today, but I’ll also prompt you to think about this question from a few different angles than you may have thought of before.

Anyway, back to Buy Now Pay Later payment options. 

What Is Afterpay And Buy Now Pay Later?

The term “buy now, pay later” refers to a service like Afterpay, Zip Pay, Klarna and now PayPal, that allows consumers to immediately purchase a product but delay payment until a later date. These payments are usually made in instalments that are pre-agreed upon purchase of the product, and are interest free if the payment is made within a specified term.

As an industry, Buy Now Pay Later is exploding. The number of platforms entering the market have increased at a rapid rate, particularly over the last 2 years since the Covid induced influx of customers moving to shop online vs in store.

And for customers, it is a shopper’s dream. A $250 coat can be bought for $50, hundreds of dollars of makeup can be sent to your door for just $20. The catch: you will eventually have to pay the full price of the purchase. But for now, only a fraction has to come out of your bank account.

I remember when I launched my first business back in 2007, we used to offer layby options, where customers would pay instalments via direct deposit and we would send them statement updates until they paid their whole order off, and only then would we ship the order. 

That seems rather quaint now when I speak about it. I don’t think customers would be bothered with this now – we’ve all become so accustomed to instant gratification that we would never want to wait like that.

So let’s have a quick chat about the pros and the cons of adding Buy Now Pay Later options to your website.

First of all, why would you want to add multiple payment options of any kind to your online store? Surely everyone has a credit or debit card or PayPal account?

Did you know a lack of payment methods is one of the main reasons buyers abandon their shopping cart? 

With more consumers purchasing online now than ever, not having the right payment methods can seriously impact conversion rates. 

Approximately three quarters of customers say that the payment process is essential to the shopping experience with over 50% saying they had cancelled a purchase due to lack of an acceptable payment method. I know I’ve personally done that.

Customers want to have the option to pick the payment method that works best for them. That’s why offering the three most popular payment methods can drastically increase conversion rates.

In fact, by offering multiple payment options you can potentially convert over 15% more sales.

However, you don’t want to go too overboard with options, as offering too many choices is also known to decrease sales conversions. 

Many online stores already have Stripe, Shop Pay or some other credit card payment option, plus PayPal, Afterpay, Zip Pay and Klarna. 

Now PayPal also has a Buy Now Pay Later option as well. 

Many business owners assume that the more choices they offer, the more likely customers will be to make a purchase decision. And so they add all the options in.

But research actually shows that when there is too much choice consumers are less likely to buy anything at all, and if they do buy, they are less satisfied with their selection.

In 2000, there was a research study done that’s since become quite famous. On one day, shoppers at a high end food market saw a display table with 24 varieties of gourmet jam. Those who sampled the spreads received a coupon for $1 off any jam. 

On another day, shoppers saw a similar table, except that only six varieties of the jam were on display. 

The large display attracted more interest than the small one. But when the time came to purchase, people who saw the large display were one-tenth as likely to buy as people who saw the small display.

So it’s like the 3 bears and their porridge. Too few options and you’ll lose customers, and too many payment options to your website, your checkout page will look so cluttered and confusing, you’ll end up losing customers because they can’t make a decision or because the checkout is so busy they can’t figure out where to click to complete their purchase.

OK, so we know we need to offer a few payment options to increase our sales conversion rate, without going so crazy as to offer all the possible options on the market.

What Are The Benefits of Afterpay and Buy Now Pay Later?

Why add Buy Now Pay Later options at all? It only takes 5 minutes of research to discover that businesses incur extremely high payment processing fees on Buy Now Pay Later transactions. Often double the fees of other payment options. 

There are a number of reasons why you’d go for it, but I want to start with Trust.

The hardest sale to make is always the first one with a new customer. 

When customers first visit your website, you have to help them get past many hurdles, from whether your products are the ideal choice for their needs, to whether you are a trustworthy online store to transact on. 

All eCommerce websites need trust signals. Without them, sales conversions and revenue will remain low.

Whereas, your website visitors are more likely to place an order when they can immediately and easily sense that your business is trustworthy.

Using well-known and trusted payment methods is one of the fastest ways to establish trust with a new customer, particularly if the payment method reduces risk in some way or another, such as with buyer protection and reduced initial payment as is the case with Buy Now Pay Later instalments. Customers know that with BNPL financing they can try before they buy, and if they don’t like the item they don’t have to wait weeks for a refund. 

It also minimises the risk to the business owner of fraudulent transactions, because the Buy Now Pay Later platform is the one taking the risk on the transaction. So you can potentially scale your business with less risk.

Secondly, statistics show conclusively that customers end up buying more often, spending more per transaction, and shopping more frequently.

So, adding in a Buy Now Pay Later option will typically increase your sales conversions because customers feel more comfortable making bigger purchases when they are able to minimise impact and spread costs over a long time period. It gives customers the opportunity to purchase something they would have otherwise walked away from. Of course, some people choose to save their money and wait before making a purchase. However, in the modern world, most of us are too impatient and prefer instant vs delayed gratification.

Increased conversion rate generally always means you make more money off the same amount of website traffic, although of course you need to be mindful of average order value here. If the conversion rate goes up but your order value goes down, you’re in no better position.

However, statistics actually show that customers paying via Buy Now Pay Later options typically spend more per transaction. Having access to credit means customers are often prepared to spend more on the things they want.

In fact, payment provider Klarna has stated that having them as a payment solution leads to a 44% increase in orders and a 68% increase in order volume, which kinda sounds a bit like a ‘get rich quick overnight solution’!

Adding in Buy Now Pay Later options can increase your potential customer base. As I mentioned earlier, not offering a customer’s preferred payment option can lead to cart abandonment, so by default this can mean adding one in opens you up to new customers choosing to buy. 

It has been shown in recent years that younger generations are actually less likely to have a traditional credit card and prefer Buy Now Pay Later options instead. It’s viewed as being a less risky form of financing. So depending on who your customer base is and who you wish to attract to your online store, you’ll want to consider Buy Now Pay Later options.

Afterpay also says that Buy Now Pay Later payment options help to build relationships with customers who come back for repeat purchases as well. In fact, Afterpay says that 90% of their transactions are from returning customers. But as fantastic as this sounds, I will talk a little bit more about this piece in a moment though, as I think there’s a bit of a dark side to this story.

So, most of this sounds pretty rosey. There are many benefits and positives to the business for adding Buy Now Pay Later options onto their website. 

But there’s always a flip side to the coin that we also want to consider and be aware of.

What Is The Cost of Afterpay And Buy Now Pay Later Options

The most obvious downside are the transaction fees. You’ll pay a transaction fee each and every time consumers shop on your website with Buy Now Pay Later payment options. This payment model is similar to all other payment methods that retailers use such as credit cards and eftpos cards. They all have a fee, it’s only old-fashioned cash that doesn’t come at a price.

But, Buy Now Pay Later fees are typically quite a lot more expensive than traditional credit cards. 

Stripe, as a traditional credit card processor, charges 30 cents per transaction plus 1.75% of the transaction value.

PayPal is 30cents per transaction plus, I think, 2.9% of the transaction value.

And AfterPay is more like 30cents per transaction plus 4-6% of the transaction value. 

So it’s considerably more expensive for businesses to accept Buy Now Pay Later payment options, and this will have an impact on your net profits.

If you increase your customer base significantly enough – let’s say you acquire 15% more new customers in a year as a result of offering buy now pay later, and those customers spend more per transaction – you will ultimately end up with more net profit in dollar terms compared to not offering a buy now pay later option. 

Where we all need to be more mindful and more diligent about reviewing our performance metrics and our profit and loss statements – is the ongoing or long-term impact. 

The benefits to increased new customer acquisition is pretty clear and obvious, but if those customers continue to pay using Buy Now Pay Later, what might be the long-term impact to your profit margins?

Afterpay states that 90% of their transactions are from repeat customers. This potentially means that a business’ repeat customer base is less profitable. 

We’ve had clients in the past who actually removed the Buy Now Pay Later options from their online store because they could see that customers were choosing it over other cheaper options, sometimes out of laziness to get up and find their credit card for the purchase, but the customers were still loyal customers that wanted to shop with them. So by removing the option, the customers just chose something else and continued to shop with them. 

So, should your business adopt Afterpay?

As a rational, profit-driven business owner, the question you need to ask yourself is this: does the 4-6% merchant cost outweigh the additional sales generated from Buy Now Pay Later users?

You want to look at these three factors:

  • Your gross profit margins;
  • The percentage of new sales you’ll generate from Buy Now Pay Later; and
  • The overall percentage mix of sales paid via Buy Now Pay Later.

Let’s go through an example scenario to help you make a decision.

Let’s assume a business currently does $150,000 of net profit with a gross profit margin of 50%.

Next, let’s consider what happens if the business decides to adopt Buy Now Pay Later?

Let’s assume the instant gratification customers — the ones who typically go for an option like Buy Now Pay Later — spend on average 5% more on every transaction, which results in higher sales. 

Let’s also assume 5% of total sales are paid via the Buy Now Pay Later platform. These have an impact on the direct costs of the business, because 5% of total sales attracted the merchant fee of, say, 4%.

Factoring the 5% of new sales growth and merchant fee, the business generates an additional $41k of new annual profit. Pretty good right?

Under this example, it’s a no-brainer — you should adopt Buy Now Pay Later options.

But, what happens when the hype of Buy Now Pay Later fades away? What if the buzz of Buy Now Pay Later retail therapy wears off, and your customers go back to their ordinary spending habits. It’s not unreasonable to assume sales volumes will eventually revert to the mean.

The problem here is because your customers are ‘hooked’ on the Buy Now Pay Later platform, the overall mix of sales paid via Buy Now Pay Later is higher — which can actually cost you more money if you’re not generating any new sales as a result of the platform.

Then, what if no new sales are generated from the original scenario, but the overall mix of sales paid via Buy Now Pay Later shifts from 5% to 15%.

It’s a very different result. The business is actually worse off.

Why? Because there are no new sales being generated from Buy Now Pay Later, only shifting some existing customers from other cheaper payment options to this more expensive one.

The sales the customer would ordinarily buy via alternative payments (cash or credit card) is now paid via Buy Now Pay Later, which attracts a higher merchant fee. The result is that the overall costs of the business increase, with no actual benefit.

So, economically speaking, one could argue Buy Now Pay Later payment options have short-term benefits to your business due to the increased sales volume — but over the long term it may end up eroding your profitability.

Ultimately — as with any strategy you might employ to grow your online store — you’ll only know the true outcome for your own business if you try it. 

We all need to have confidence to test out ideas and strategies that we think might have a positive impact on our business.

And then we need to track and monitor the results so we can make decisions on the empirical data in our own businesses. 

It’s the scientific method in action: start with a hypothesis, preferably one that’s informed by some evidence of success. Then implement it and monitor what happens so you can base your decision on your own results.

So there you have it — a somewhat thorough, I hope, description of the pros and cons of adding Buy Now Pay Later payment options to your online store. 

I hope I’ve been able to help you think this situation through so that you can make a decision to suit your own situation best. 

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