The Science Behind “Buy Now, Pay Later”

The foundational principles of commerce have existed since a time long before any of us can most likely remember. The basic principle of “You have something I want. What would you like in exchange for it?” is one we take entirely as a given in today’s society. Spending my days focussing on eCommerce (humanity’s latest branch of commerce), I spend a significant amount of time dissecting the smaller details of this base principle. One such construct is the steps of the interaction; from desire to exchange.

Several weeks prior, I met with the head of a venture capital firm who focus largely on African markets. While discussing the differences between the various markets in central and west Africa, the concept of “buy now, pay later” was discussed. This sparked a series of thoughts on the topic and how we can leverage this principle to create a more pleasant purchasing experience for our would-be customers.

Decoupling the base elements

At it’s very core, commerce is a desire and an exchange. When exploring these constructs further, I’ve noticed that one is a fundamental core pleasure (desire) and the other a somewhat reluctant, more contractual, agreement. Essentially, the desire for an object is fun and exciting, while having to pay for it isn’t very exciting.

We are ruining a fun and pleasurable experience by coupling it with a business agreement.

Introducing buy now, pay later

Adopting the above theory, decoupling the two constructs should result in a more pleasurable purchasing experience for the would-be customer. Working with the theory of “if something is fun, people will be more likely to do it, and more often”, this should result in a higher conversion rate.

Additionally, this enables someone to commit to a decision within a shorter time frame, and pay for their commitment at a later stage (at their convenience). If I’m on the road and I really need to book a flight, I can do so on my mobile phone and pay for it later when I return home. This ensures I have promised the company I will purchase said flight from them, and am prepared to pay any penalty fees they charge if I wish to cancel my booking.

Pre-ordering- another take on this concept

Pre-ordering a product is essentially the same as buy now, pay later. The key difference, however, is the product isn’t readily available for purchase at that time (unlike buy now, pay later, where the “pay later” part is optional). Thinking back on pre-order experiences I’ve had, I’ve enjoyed these purchases far more than having to pay upfront for an item. Even if I’m paying a small sum up front, this is far more pleasurable than paying the full amount up front and having to wait for the item.

Executive summary

When dissecting ecommerce, it’s important to ensure your customer’s purchase experience is as seamless and beautiful as possible. If this means offering them the option to pay later, be aware of this. Your customer is an integral part of running your online store. Listen to them, adjust your checkout accordingly and be willing to take a chance if the risk is calculated and can pay off.

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