November 20 2021

Buy now pay later – Adding a new dimension to e-Retail.

Buy Now Pay Later – A Fintech product.

One of the sectors that saw huge spike in usage was undoubtedly ecommerce, logistics and fintech companies.

Buy now pay later is one such fintech solutions which is disrupting banking sector especially credit cards.

What is Buy Now Pay Later (BNPL)?

Buy Now Pay Later (BNPL), as the name suggests, is a micro-credit instrument.

It’s function is similar to credit card, that I allows consumer purchases just as a credit card.

BNPL users get to split their eligible online or offline purchases, i.e. purchases made with partnering merchants, into zero-to-low interest instalments or repay the total dues at a later date within the repayment cycle at no interest charges, according to the terms and conditions of the BNPL service provider.

For example, if you buy something in a store or online, you may be offered the buy now, pay later option at checkout.

If you get approved, you usually make a small down payment at the checkout.

You would then pay off the remaining balance in a series of interest-free instalments.

Why so much noise for “Buy Now Pay Later”?

Pandemic has changed the way we shop or our buying behaviour,

Convenience is the buzz word and if it comes with easy credit facility then it becomes a trend. (in urdu we say, sone pe suhaga, means cherry on top of the cake)

Global e-commerce transactions totalled $4.6 trillion last year, up 19 per cent from 2019, a report from Worldpay says.

BNPL accounted for 2.1 per cent or about $97 billion of that sum. (source: worldpay)

So, when you are talking about a trillion dollars sector, then it gets all the attention it needs in the marketplace.

There are a number of BNPL players vying for a share of the Middle East market, including Spotii, Postpay, Cashew, Tabby and Tamara. Australia’s Zip, a global BNPL platform, bought Spotii for $16.25 million in May this year.

Learn how to develop your Influencer Marketing Plan, Click here.

Why Millennials are in love with Buy Now Pay later (BNPL)?

Millennials hate conventional banking.

They are not interested in high interest rates on cards, and recurring fees.

Convenience of easy on-boarding. (Hassle free documentation of BNPL attracts them).

BNPL service providers often use new-age mechanisms to evaluate the creditworthiness of an applicant; thus, the customer onboarding process is usually fast and convenient with zero documentation requirements or joining charges.

The entire process is digitally enabled through internet-connected mobile devices or apps.

Upon approval, a BNPL service provider issues a line of credit based on its assessment of the user’s creditworthiness and income.

After signing up, users can visit a partnering merchant application, website or offline store (in some cases), add the desired items to the shopping cart, and select their BNPL provider’s payment option at ‘check out’ to buy the selected items in a secure one-tap manner.

Users can then convert their dues into zero-to-low interest EMIs, according to the terms and conditions of their BNPL service provider.

These BNPL companies are operating like mini banking institutions wherein they incentivize the purchase with cash backs, extended credit facility etc.

How does BNPL operate?

The main premise of Buy Now Pay later companies is “Consumerism is here to stay”
Ritesh Mohan

“Why wait for tomorrow when you can have your favorite gadget or dress today at equated monthly installments, which are interest free”

BNPL player’s services or model help countless customers, especially the ones who have just started working, to better manage their expenses by allowing them at least a few weeks to make the repayments.

BNPL services, thus, are rewarding spending tools for those who are yet to recover from the many financial shocks of the pandemic-induced lockdowns or are outside the credit card ecosystem.

Word of Caution- Buy now pay later

Customers must keep in mind that a BNPL facility is still a loan that needs to be repaid in full on time to avoid penalties and an adverse impact on their credit scores.

Learn about “Hyper Personalization”, click here.

Challenges for customers using BNPL option:

Since the sector is in its developing stage, following are some challenges.

Customer and Merchant acquisition
Getting both customers and merchants to come online with BNPL player is one such challenge, however BNPL players are identifying themselves as more of the omnichannel solution providers to the retailers in order to mitigate the risks involved.
Goods returns
Returns can be an issue, too.

If you return an item, it can take substantial time and effort to have the BNPL credit provider acknowledge the return.

You may still be obligated to pay your installments till the issue is resolved

How does the BNPL players make money?

At the outset, the financial looks similar to that of credit card company.

Net take rate represents the commission charged to merchants (Take rate) minus payment processing fees that the BNPL company pays.
Debt financing cost corresponds to the interest BNPL providers pay banks for liquidity (to provide loans to their customers).

Debt management cost equals the credit check costs plus payment collection costs minus late fee payments collected from customers.
Provision for debt impairment is the weighted average percentage of loans that are not paid back (i.e., bad debt)
GMV refers to Gross Merchandising Value, the sum of all payments conducted on the BNPL platform.
Marketing and sales expenses are the expenses incurred as BNPL providers acquire and onboard both merchants and customers to their platform.
General and administrative expenses include team salaries, technology, and other infrastructure costs.

Let’s take an example: Suppose your net take rate is 5% (assuming merchants pay you 6% and you pay 1% in payment processing fees). If you pay 1% interest on your loan, and it costs you 1% to manage consumer loans, the percentage of your non-performing loans can’t exceed 3%; otherwise, you lose money.

Profitability for BNPL or for that matter with any tech firms is based on

Scalability – acquire more customers and merchants.
Incentivize the purchases especially up-selling using BNPL product.
Negotiate better terms with both Merchants and Banks (for debt financing cost).
Access more data on customer’s spending and build a separate data insight report for the merchants to buy and take benefit.

Buy now pay later – a boon for ecommerce sites.

Reduce cart abandonment rate.

This is the main challenge for any ecommerce site is to reduce the cart abandonment as over 40% traffic that comes on to the site, leaves the cart without click on the “Buy now” tab.

Improves the basket size by means of upselling. Hence your average transaction value increases along with the average transaction quantity.

Ecommerce retailer gets their full payment while their customer enjoys installment plans. This helps in customer retention and build trust.

Lower customer acquisition cost- Increase in sales for the same amount of efforts done in getting the online traffic through marketing efforts.

Attracts first time buyers with the installment option at the time of check-out.

Increase in CLV:

Customer lifetime value (CLV) is the total amount a person spends at your store over their lifetime as a customer.

Since the cost of earning new customers is up by over 50% in the last five years, keeping your current customers is more valuable every day.

Summary

Providing your customers with many payment options is essential to boost customer experience and it can help you convert more shoppers into paying (and loyal) customers.

Buy Now Pay Later option just does it.

It’s a win-win option for both fintech BNPL players, Banks, Merchants and consumers.

References: The Guardian.com, Observer’s Fintech , thefinancialexpress.com , worldplay.

About the Author

Ritesh Mohan is a passionate retail professional with over 22 years in the Retail sector, handling some of the biggest brands in the beauty, fashion, and fragrances retail & FMCG sector.

He has been instrumental in the growth of some of the regional brands as well in the Middle East region.

Ritesh specializes in Retail management, Product development, and Brand Management, Retail Operations, Sales Management, and Franchising & Business Management.

He strongly believes in empowering business owners with his wisdom & experience of around two decades in the industry.

follow me on Instagram as @mohanritesh & on Youtube as @riteshmohan

December 1 2019

Either you are a winner or a loser; Learn tricks of the retail game from TJ Maxx.

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Either you’re a winner or a loser- there is no middle ground in retail. Learn tricks from TJ Maxx.

Read this article if You want to learn the retail tricks from TJ Maxx.

It is a bold statement that I am making and most of you would have heard a famous quote from stars war series by a guru protégé “Yoda”.

“Do or do not. There is no try.”

This quote is a simple lesson in commitment and the power in giving something our all — not just giving it a try.

Most of our Middle Eastern value apparel retailers need to follow this mantra in case they need to succeed in 2020.

Being in fashion retail for a long time and being a curious student of retail, I see most of the fashion clothes retailers are out of ideas in order to market their merchandise.

They are still using old school marketing thoughts in order to sustain their businesses like celebrity endorsements, discounting, and sales, price markdowns, etc.

Always remember, “What brought you here, won’t take you to the next level”

Your brand needs to stand for something, if you are a value fashion retailer then you need to redefine value and stand for it. If you are a sustainable brand then stand for it like a luxury sustainable brand Eileen Fisher.

By trying too many things in bits and pieces will not lead you to your destination but would only prolong your brand’s declining status.

Let me here give a case study of TJ Maxx to explain my points.

Why TJ Maxx is successful?

Look at the statistics below for TJX, ( we know about TJX, the parent company of TJ Maxx):

TJX’s sales have risen for 22 straight years.
Their market stock has increased by more than 24% over the past year.
TJX same-store sales rose 6% in the fourth quarter of 2019.
Opened its 4,000th store in 2017 but has plans to hit 6,100.

Can your fashion retail brand boast of such credentials?

TJX understands how to attract consumers to their brick-and-mortar locations. While all TJX stores are successful, TJ Maxx is the driving force behind the company’s positive results.

Let me highlight here factors that I feel have contributed to their success.

The Treasure Hunt.

Management prides itself on having unusual and great value merchandise in all stores – often well-known brand labels – that creates a surprise for customers and extra sales for the store.

TJ Maxx stores give these people exactly what they want, the opportunity to find a brand-name designer product at a bargain price, just like a treasure hunt.

The Neuroscience behind this phenomenon is called FOMO (Fear Of Missing Out).

2) TJ Maxx’s strengths lie in their buying and store staff.

Most of the Middle eastern retail companies are being run and operated by CFOs who have no practical experience on the shop floor. They only know to read Balance sheets without having an outlook for making the business turn-around.

So if, given a scenario of like for like sales of a store that is declining continuously, the obvious decision of a CFO would be either to close down the store or cut down on headcounts in order to cut costs.

This is according to me a loser’s mindset.

The winner mindset is depicted by TJ Maxx i.e. The company has upped its merchandising staff by 10%. Adding extra people to scour exceptional values.

Management stresses strong vendor relationships that these merchants nurture, and that often leads to unusual buys for their stores.

These buyers understand what their local customers want and are constantly buying inventory rather than only a few times a year.

This allows TJ Maxx to deliver better deals and be more responsive to trends.

Learn why Primark is saying no to E-commerce, read here.

3) Capturing Market Share- The Main aim of TJ Maxx.

Management stresses that it must generate great traffic in its stores.

By offering great values on great brands all the time, they have been successful in achieving this objective.

The company has indicated that customer traffic was up in all divisions.

For the full fiscal year 2019, comparable store increases were up +7% for Marmaxx (U.S.), +4% for HomeGoods (U.S.), +4% for TJX Canada and +3% for T.J.X International (Europe and Australia).

4) Fresh Merchandise hitting the floor is the key:

TJ Maxx has a motto “door to the floor in 24.” Their goal is to get the product out on the floor within 24 hours of being delivered to the store.

Their products actually get sold faster – an average of 25 days vs. more traditional stores like Macy’s which average 100 days per inventory turn.

5) Stores are built on Low CAPEX.

This is according to me one of the main reasons for the TJ Maxx store’s success, low cost to built up means faster break-even of each store.

TJ Maxx locations average 30,000 square feet and typically don’t have any walls. This allows the stores to quickly rearrange the layout as needed.

How many Middle Eastern fashion retailers would qualify for this criteria?

My answer would be none.

6) Stand for something – TJ Maxx stands for amazing bargains

By understanding their customers and delivering what the customer needs at that moment, TJ Maxx gains trust from their customers. Customers trust they will find a bargain when they walk into a TJ Maxx.

According to Brand Keys’ 2019 CLEI survey, TJ Maxx is 1 of the 6 most trusted brands.

Watch out the video on TJ Maxx success:

I would like to sum up my article, as I feel I have expressed key strategic insights for my middle eastern fashion retailers in my article and in case, if any of my readers, would want to learn more about redefining their retail business, then feel free to write to me on riteshmohan@yahoo.com.

You can now subscribe to my blog for free by simply entering your email address.

Every week, key retail insights would be sent to you as soon as the new article is published.

About the author:

Ritesh Mohan is a passionate retail professional with over 20 years in the Retail sector, handling some of the biggest brands in beauty, fashion and fragrances retail & FMCG sector. Ritesh has been instrumental in the growth of some of the regional brands as well in the Middle East region. He specializes in Retail management, Product development, and Brand Management, Retail Operations, Sales Management and Franchising & Business Management. He strongly believes in empowering business owners with his wisdom & experience of around two decades in the industry.

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