It is widely acknowledged that Buy Now Pay Later (BNPL) has experienced a substantial growth in the last five years for online e-commerce purchases. Online retailers have found the BNPL payment option to be an ideal way to upsell to shoppers and to increase both conversion rates and the size of their shopping carts. Across the globe, the “A” to “Z” list of BNPL providers continues to grow and these Fintech companies have been highly agile to quickly integrate e-commerce retailers and businesses with a BNPL payment method. Managed correctly, BNPL can be an effective way of accessing credit. Millennials and Gen Z have quickly adopted BNPL, and for a retailer, these are an important demographic.

However, as the value of e-commerce sales is around 25% of global retail sales, physical sales represent by far the largest opportunity for value-added services at the POS terminal. BNPL should be the perfect example. In this article, we look at if BNPL can work in physical retail, and whether consumer appetite supports it.

We have seen, for example, if a shopper has already signed up to Klarna, one of the leading BNPL providers, and the store has too, then Klarna’s BNPL service is available in-store at the retailer too. The customer provides either an email address, phone number or scans a QR code to access the service. This will prompt a message from Klarna asking the customer to confirm their payment details and once this is done the transaction is able to finalise the purchase. It may look glossy and simple in Klarna’s promotional video, but in real life, the customer experience is often clumsy and relatively slow. This hasn’t prevented other providers to offer BNPL in-store. Affirm launched a debit card which allows their consumers to make purchases with a range of physical retailers, such as Peloton, and offers customers point-of-sale loans that can be paid off in fixed monthly instalments. Blackhawk partnered with BNPL company Zip, to allow consumers to use their financing solution to buy gift cards from Blackhawk retailers.

Consumer credit as an unsecured loan originated at the point-of-sale (POS) terminal is not a new proposition and is projected to continue its growth. This growth is underpinned by increased consumer and merchant awareness and adoption of POS financing solutions. Retailers are seeking to replicate the seamless integrations in-store which they have already been able to do for their e-commerce sales. This is where the BNPL providers are not yet as quick and frictionless as they need to be in-store. The customer sign-up process takes longer, which not only deters customers but also creates lengthy customer queues at the checkout. This is not a great experience for the consumer or the merchant. For the BNPL provider to be fully integrated with a POS solution there are several challenges to overcome. It is not as simple as the ability for a restaurant goer, for example, to add a gratuity to their bill at the end of the meal.

Conversely, POS terminal manufacturers, have been desperate to reduce their diminishing revenues, by complementing their proposition with recurring revenue and value-added services that can be bundled into the hardware device. Lightspeed, Toast, Revel, ePOSnow, CEGID, Square, Vend, Worldline/Apollo, Verifone, and many others, are offering more than a dumb POS terminal. Sometimes referred to as a smart terminal. These POS solutions are more sophisticated and flexible than the traditional dumb POS terminals that so many shops use today. Smart terminals allow for software apps to be downloaded to the terminal. Just like an app from the Apple or Google Play store. These apps allow retailers to help manage their businesses beyond the acceptance of payments. Scheduling and payroll, booking appointments, accounting, data analytics, inventory control, customer loyalty, menu management, order management, and many more apps exist.

Like the Apple App store or the Google Play store, POS terminal manufacturers are effectively offering a marketplace of business applications, that can be downloaded and used on their POS terminal. Additional value-added services can also be accessed from the cloud. Usually, a specific device is required, as seen with the PAXstore for PAX devices. However, the Avei App store is aiming to be manufacturer agnostic. Some apps are simple to use, whereas others promise the earth and fall flat on implementation. BNPL apps are currently not top of mind for retailers reflected in the fact that they typically do not feature at the top of the app stores.  

Square, and now Stripe, are keen to serve physical merchants as much as their e-commerce retailers. Square, following the 2021 $29bn takeover of the Australian Afterpay, has promised to support BNPL in-store. There is little evidence they have managed to pull this off beyond their virtual terminal offering – which serves the mail order and telephone order market – just another name for e-commerce. There are no proven implementations of BNPL in-store from Square yet. Stripe’s acquisition of BBPOS at the start of 2022 has really capitalised on the end-to-end PIN-On-Mobile solution rather than bundling BNPL into the offering. CEGID, the French retail software company, has successfully integrated the Paris-based BNPL firm, Alma, into their retail offering. Alma already works with retailers such as Etam, Galeries Lafayette, Printemps and Ankorstore. Whether there is retailer demand for BNPL in-store or whether it is an example of the BNPL company pushing its agenda beyond online and into the stores of retailers remains to be seen. As things stand today, there is little evidence of retailer or consumer adoption of BNPL in-store.

So, has BNPL got any future on the POS terminal? There are a plethora of pundits and analysts predicting the future of BNPL will continue to grow with growth rates of over 30% for the next 3 to 5 years. At EDC we don’t sign up for this level of optimism for BNPL. There is no doubt, the world's fastest-growing e-commerce payment method is BNPL, and it has been a major disruption in alternative financing – for the online channel. From a retail industry perspective, in our view, the BNPL space will continue to evolve and we expect that it will, in part, be redefined by incumbent banks' BNPL offerings, as well as other larger players re-inventing themselves to be more sustainable and will diversify their proposition into a boarder set of merchant and consumer services to drive profitability - something that many of the BNPL fintech companies have found to be elusive.

As for BNPL being embedded into the POS terminal? This has a future, but it is not just around the corner. There are some technical and business challenges. More importantly, there must be a smooth customer journey – which includes optimising payment acceptance at the POS terminal and processing the customer’s details during the transaction. At EDC, we see best-in-class retailers investing a lot of time and effort in understanding their customers’ digital customer journeys. A clumsy customer experience at the POS is the number one issue for many retailers. Retailers are keen to upsell the benefits of BNPL in-store which can be seen in the e-commerce channel but providing an identical customer experience across all sales channels is the biggest challenge to date. With an “A” to “Z” list of BNPL providers all implementing different customer experiences at the POS in-store, this has the potential to result in one of the biggest IT spends in the retail sector without a positive return on investment or any sizable consumer demand. Inconsistent checkout experiences in-store is not what retailers or consumers want. Let us keep a watchful eye on how BNPL in-store develops in the next few years.

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The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).