Buy now, pay later

Payment by instalments – impacts on the furniture trade

Flexible payment options such as payment by instalments are becoming increasingly important in online shopping. This also has an impact on the furniture trade.

Dec 06 2021

Have you ever heard of the abbreviation BNPL? It stands for "buy now, pay later" and is causing a shake-up in online retail that even the furniture industry cannot avoid. Because "buy now, pay later" is becoming increasingly important in e-commerce and payment service providers are developing new solutions for it; the competition in this area is becoming fiercer.

Basically, BNPL refers to the process when the customer buys something now but pays for it later, explains Daniel Strieder, CEO of the Viennese financial services provider Credi2. "One type of BNPL is already well known to merchants: purchase on account." So in principle, paying later is nothing new, but today it comes in different forms and in a technologically mature form. Because customers don't want to wait long to buy the product they want when shopping online. Flexibility is the magic word here.

Payment service provider PayPal, for example, offers this with corresponding offers – for example, by means of payment by instalments: customers can pay amounts of up to 5000 euros in 3 to a maximum of 24 monthly instalments. The merchant receives the money immediately, as does the option of paying after 30 days. Appropriate buttons for the online shop, which are provided by PayPal, should draw attention to this option early on.  

Competition among providers 

The ulterior motive: paying later is becoming a killer argument in e-commerce. Besides PayPal, the Swedish Klarna also offers such possibilities. And the US company Apple has recently launched an instalment payment service in its home country, through which Apple devices such as iPhones can be financed by private customers over two years and without surcharges. It is expected that the offer could be extended to other countries.

Young companies from the growing fintech segment are increasingly entering the market - such as Credi2, which specialises in BNPL. But his company is not competing with established banks, says CEO Strieder. "Our role is to support banks, financial service providers and trading companies to offer user-friendly BNPL solutions." Intuitive design and user-friendly processes that fit seamlessly into the customer's shopping experience are key, he says.

When shopping online, the payment process should be quick - even when opting for payment by instalments © Unsplash / John Schnobrich 

Furniture retailers must react 

What does all this mean for furniture retailers? Strieder points to a study by his company: for more than half of the 1,000 respondents, BNPL is an uncomplicated payment option, especially for online shopping, but also for on-site purchases.

A Juniper Research analysis also shows that by 2026 almost a quarter of all e-commerce transactions are expected to be processed via BNPL payment - currently it is only 9 percent. "For higher-priced purchases such as bicycles and e-bikes, furniture and other furnishings, electronics and sports equipment, many customers already assume they will be offered flexible payment options."

It is important to understand, he says, that it is often not a lack of liquidity that is decisive for this, but the desire for flexibility. Strieder is convinced that the furniture industry in particular can no longer avoid the topic of BNPL. "Especially in the area of living, purchases are seen by many customers as a long-term investment. Therefore, the desire to be able to finance furniture over a longer period of time is even more important." 

Quick processes without detours are crucial 

What is decisive is the simple and, above all, quick implementation of instalment payments and other online offers for later payment. PayPal, for example, promises to check an application "within seconds". The customer then concludes an instalment contract with an effective annual interest rate of currently just under 10 percent. Speed is essential: there is simply no time to first apply for a loan at a bank in the fast-paced online business.

But what about the legal regulations in Germany and Austria regarding consumer loans? After all, there are sometimes strict regulations, for example on the duty to provide information. Similar risk assessments have to be carried out as in traditional banking – only faster, leaner and more user-friendly, emphasises Daniel Strieder.

This works, for example, via a real-time credit check. Customers log into their salary account, create a digital budget statement and are immediately informed whether the risk assessment is positive or negative. All this should only take a few seconds. In addition to payment by instalments or a credit line, BNPL also offers a subscription model or the tried and tested purchase on account option.

Author: Robert Prazak 

Credi2 CEO Daniel Strieder: "Especially in the housing sector, purchases are seen as a long-term investment."  © Credi2, unattributed 

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