Cashing in on the ‘buy now pay later’ trend
Having an alternative payment option can benefit retailers in different ways. Co-founder of hoolah and Head of Partnerships at ShopBack, Mr Arvin Singh, shares some insights.
The concept of instalment plans isn’t new, but as Singapore consumers increasingly shift to online shopping, there has been widespread adoption of the buy-now-pay-later (BNPL) business model.
BNPL allows shoppers to spread out their payment over a few months. The partnership between a BNPL provider and retailer is quite straightforward, with the provider charging the retailer a transaction fee for offering their BNPL services to customers.
BNPL has made purchasing more accessible to consumers. Traditional instalment payment plans tend to have a minimum spend amount and it also requires the customer to have an existing credit card, usually from some select banks. In addition, there are additional charges applied to traditional instalment payment plans such as processing fees and interest charges.
With BNPL, customers get to enjoy 0% interest, no additional fees, and the ability to use both debit and credit cards to make payments — for ShopBack PayLater, this can be from any financial institution in Singapore, providing maximum flexibility.
It is available for offline and online shopping, and integrates easily with the merchant’s existing e-commerce payment page and point-of-sale systems. The standard is three monthly instalments with the first one being charged at the point of purchase. These benefits appeal to consumers and dovetail with new shopping trends.
For retailers, they benefit from higher conversion rates and higher average basket size. At ShopBack PayLater, we see merchants achieving a 25% increase in purchases and 20% increase in average basket size or purchase spend. Our partner merchants also enjoy access to ShopBack’s large base of loyal customers.
What’s more, BNPL is set to grow even bigger. Singapore’s BNPL gross merchandise value is expected to increase from SGD 673.16 million in 2021 to SGD 4,011.20 million by 2028.
Setting the record straight on BNPL
The biggest misconception that retailers have about BNPL is thinking that they only get paid after the customer has completed the payment cycle of three monthly instalments. In reality, we make it very easy for merchants so they always get paid in full and up front. This is something that we’ve been trying to demystify. There is also no risk of bad debt as we manage it with our proprietary system.
Another myth is that once customers agree to use the BNPL option, they are confined to a strict payment schedule and will not be able to settle the bill in full outside of the auto-deductions. This is false, in fact, ShopBack PayLater customers can choose to make an early payment outside of the scheduled due dates with no penalties.
To address these concerns, we always encourage merchants to actively educate customers about the benefits of BNPL across key touch points including their social media, in-store assets and websites.
Insights into consumer spending patterns
We’ve worked with thousands of merchants since launching hoolah in 2018 and we were the first BNPL to emerge in Southeast Asia. We have a good merchant mix that is constantly growing – from fashion, health, to home and lifestyle, including offline department stores. For example, Charles & Keith, BHG and HipVan have been our main-stay merchants for many years.
We were acquired by ShopBack in December 2021, and now, as part of the ShopBack group, our BNPL solution is further supported by a large group of ShopBack merchants and made available to all ShopBack users.
We’ve seen a lot of shopping trends through the years. As expected, consumer spending tends to peak during festive periods such as Christmas and Lunar New Year when consumers are actively shopping and looking out for good deals.
New trends also emerged during the pandemic, with customers investing a lot more in their work-from-home setups in the early days. Things like computer desks and chairs, coffee machines, and other home appliances were the top-selling items. The later part of the pandemic saw an increase in sales of exercise equipment and attire.
But spending patterns differ depending on consumer demographics. For example, a fresh graduate may use BNPL to buy work wear for their first job, while someone in their early 30s may use it to spend on furniture and appliances for a new home.
In general, tech-savvy young adults are actively choosing BNPL as their preferred payment choice due to its flexibility. While their spending patterns may vary, what BNPL does is to help merchants expand their reach to new customer segments.
Rewarding for shoppers and merchants
BNPL gives shoppers a rewarding shopping experience with the option to choose to buy now and pay later for their purchases while enjoying cashback and other rewards. At ShopBack, we also make it easier for businesses to determine if BNPL works for them. Our partnership doesn’t have complex contracts with limiting clauses, and if a merchant doesn’t get the value they expect from our BNPL solution, they’re free to turn it off any time.
BNPL is also growing in the region and we have regional presence in 10 countries including Malaysia, Hong Kong, Philippines, Indonesia and Vietnam. We launched our PayLater solution in Thailand last year and are working to further scale this in 2023.
Prior to setting up hoolah in Singapore, Mr Arvin Singh was with Visa as Director of the New Channels team, helping non-financial institutions in Asia Pacific scale their businesses. He has also worked with Worldpay as part of the business development team providing payment solutions to e-commerce retailers in Asia Pacific. He is an MBA graduate from INSEAD.