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Pays to pay

eStar account manager Sharron Martin debates should we pay, or should we go?

There is little doubt that buy now pay later options, on eCommerce websites increase top-line sales growth. Providers of extended payment methods such as Laybuy or AfterPay, claim that adding their products to an eCommerce website will attract new customers, increase average order value and repeat purchase rates. Online retailers that have added one or more of these tools to their websites, have experienced the subsequent increase in conversions and spike in new visitor numbers, that these tools consistently bring. Although we now accept that this happens, there is not much information available to explain why it happens. This article attempts to decipher the reasons for the recent explosion in popularity of these tools and examines the current and future trends for them.

Short-term Credit
The most obvious reason is the shortterm credit. Extended payment methods offer short term finance and the ability to purchase an item now and pay for it later. This can be a very compelling incentive for a lot of consumers. In particular, online shoppers on weekly or fortnight pay schedules. However, short-term credit seems to be only one benefit, among many others, such as:

Convenience
One theory of the success of these tools is due to the ease of use and convenience on mobile devices. The rate of online shoppers using mobile devices continues to increase and grew by 16% in 2018, to over $500 billion in the US, according to a research report by emarketer. This trend is likely to continue with researchers predicting that by 2021, mobile eCommerce sales are expected
to account for 54% of total eCommerce sales. Extended payment methods make mobile shopping super easy. The user experience is slick and fast, giving the user less time to reconsider ‘if they really need those new shoes.’ Paying with an extended payment method, is a much easier process than entering credit card details,
even on a mobile friendly website.

Psychological Impact
It’s an old trick but they still do it, because it still works. Referred to by marketing academics as Odd Pricing, retailers often set sale prices one cent lower, for example $4.99 as opposed to $5.00, because it creates the illusion that the product is cheaper. Extended payment methods create the same effect. The total price of the item is split by the number of payments and that
number is then displayed on the product detail and cart page. It is much easier to commit to paying $15.00, than it is to $90.00. Displaying the smaller amount reduces the level of fear at the checkout and increases the likelihood of conversion.

New Demographics
Extended payment methods also open up online shopping to people that either don’t have or choose not to use credit cards. It’s certainly a lot easier to open a Laybuy account than get a credit
card. According to Swedish payment giant Klarna, Millennials tend not to use credit cards if other payment options are available. The ability to spread a purchase over a short period of time is more appealing to that audience than loading up on credit card debt.

Conclusion
To conclude, extended payment methods consistently increase online sales. The reasons that they do so, are more numerous and complex than simply providing shortterm credit. They are easy to use on increasingly popular mobile devices. Displaying the smaller amount reduces fear and lowers abandonment rates. They extend online shopping to demographics without credit cards. Online shoppers now expect to be able to use these tools and are likely to take their business elsewhere if extended payment methods are not available to them. The benefits for shoppers and retailers alike are numerous and it would appear likely, with the solid growth and development of competition in this lucrative market, that extended payment methods are here to stay, for the near future at least.

Pays to pay

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