How Subscription Businesses Can Increase Total Contract Value with Buy Now, Pay Later

The buyer’s landscape has changed drastically over the last few years.

Today, it’s hard to make customers happy with just low prices or quality offerings. Modern buyers – including e-commerce shoppers and buyers of subscription-based offerings – also demand additional and flexible payment options.

One such option that’s become very popular in recent years is ‘Buy Now, Pay Later’ (BNPL). Between 2020 and 2021, total BNPL sales increased by 41%. Further, the size of the BNPL lending market skyrocketed from $3 billion in 2019 to $39 billion in 2020. By 2024, it is expected to swell to $100 billion.

SaaS buyers love BNPL because it allows them to buy what they need while getting greater control over their cash flows and finances. But it’s not just customers who benefit. Businesses can also thrive. With BNPL, similar to retailers, SaaS firms  can increase conversions, reduce sales friction, capture more sales and revenue, and increase their total contract value.

So, should your SaaS firm offer BNPL to customers? What benefits can you expect to get from this payment method?

What is BNPL?

BNPL is not a new FinTech or consumer credit concept. In fact, it’s been around since the 1970s and even paved the way for credit cards. However, its popularity truly exploded when more people started shifting more to online purchases during the pandemic.

BNPL is a flexible payment option that allows buyers to buy a product without fully paying for it upfront. Instead, they make payments over a series of regular weekly, biweekly, or monthly payments to match their personal cash flow. Short-term BNPL plans usually don’t charge compound interest.

Some BNPL plans charge fees for late payments. These late fees are usually capped at a fixed percentage of the order value and customers can avoid them by paying their installments on time.  The value to the consumer it is predictable, customized for their credit rating

How Does BNPL Work for SaaS Businesses?

Customers opting for BNPL make equal payment installments to the SaaS business. They make their first payment at checkout and the others at regular intervals until they have fully paid for the purchase.

BNPL provides customers the freedom and flexibility to buy the product they need with manageable installment payments. They can thus meet their requirements, controlling their cash flow and avoiding credit card debt. Many businesses offer interest-free BNPL plans so the customer gets some additional budget wiggle room, which traditional credit cards can’t provide.

As a SaaS company, you can implement your own in-house BNPL payment plan whether you sell via your sales organization or on your website via self service. In fact many SaaS companies have monthly payment options.  However, to take full advantage of BNPL you’ll need to do more:

  1. Real time risk assessment & pricing engine -  In order to reduce default and churn risk it is important to assess and monitor customer risk assessment. Furthermore, predictive pricing tools should be used to iterate on pricing based on your customer’s willingness to pay and propensity to buy more.
  2. Frictionless quote to cash process   - Much like how Tesla has changed the car buying experience forever, imagine quote to cash process which is fully integrated into your CRM and allows for sales to close faster, with clicks not emails, and is adaptive to your customer segment. Further imagine if such technology could combine CPQ software (as an option) and help your price better with predictive analytics and bill & collect all in one platform. 
  3. Large credit facility - In order to get the cash upfront for each your customer deals you will need to access hundreds of millions in a credit fund not to mention the associated servicing, reporting and legal requirements 

You can save this effort by working with a BNPL provider like Ratio. Contact us to learn more.

published on
October 19, 2023
Ashish Srimal
Co-founder & CEO at Ratio
Ashish Srimal is a SaaS entrepreneur and executive who has built SaaS startups and led large SaaS businesses.
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