PayLater (BNPL): Trends and Tips to Leverage This Promising Payment Method in Indonesia

PayLater, also known as Buy Now Pay Later (BNPL in short), is an up-and-coming payment option that can help your business unlock new growth opportunities in Indonesia.

With the increasing popularity of digital payments, more merchants are racing to make more convenient for customers to pay. Increasingly, customers are also adjusting their consumption patterns and behavior based on the convenience offered by various digital payment options.

So, it’s in merchants’ best interest to provide a right selection of payment options that are as convenient as possible for their customers, from virtual accounts and QRIS to direct debit and of course–PayLater or BNPL. PayLater offers unique facilities and benefits, which we’ll discuss further in the article.

What is BNPL and how does it work?

What is BNPL?

As its name implies, Buy Now Pay Later (BNPL) is a payment method that allows consumers to purchase goods or services and pay for them over a period of time, often (but not always) with interest or fees. It also commonly goes by the name PayLater.

One of the key benefits of BNPL is that it offers greater flexibility and convenience than traditional credit cards or loans. Customers can choose to spread out their payments over a longer period (usually 1-12 months), depending on the provider), making it easier to manage their finances and avoid accruing high-interest charges.

Furthermore, BNPL payments are usually accessible to people who may not qualify for traditional credit products. This includes younger consumers who may not have an established credit history or individuals who have a lower credit score.

At first glance, BNPL may seem to work in a similar way as a credit card. However, by using BNPL, customers can make purchases cardlessly and digitally. 

It’s also much easier to create a BNPL account. Unlike credit cards, which usually have much more stringent requirements and a time-consuming approval process, BNPL providers usually only require basic personal information.

How does BNPL work for customers?

The BNPL process is quite straightforward. When a customer chooses PayLater as a payment method at checkout, they are usually required to sign up and provide some basic personal and financial information. The BNPL provider then conducts a quick credit check to assess the customer’s ability to pay back the borrowed amount. If approved, the customer can make the purchase and start the payment plan.

The BNPL provider will set out the payment schedule, which includes the total amount of the purchase, plus any interest or fees. The customer is required to make the agreed-upon payments on time to avoid penalties or additional fees. Some providers offer flexible payment plans that allow customers to adjust the payment schedule–possibly with additional fees.

How does BNPL work for merchants?

From a merchant’s perspective, BNPL purchases work just like any other normal purchases using other common digital payment methods. Merchants will obtain the entire transaction amounts upfront, regardless of their customers’ payment arrangements with the BNPL provider. 

In other words, the administration of the installment payments are entirely between the BNPL provider and end customers. Once the transaction has gone through successfully, there is no further action needed from merchants in terms of collecting payments.

PayLater usage trend

In Indonesia, the number of PayLater users is growing significantly along with the growth of e-commerce. According to recent research from Kredivo, the number of PayLater users on e-commerce platforms increased to 38% in 2022 from the previous year’s 28%. 

Although PayLater is still less popular compared to other digital payment methods such as e-wallets, virtual accounts, and QRIS, there are several reasons why customers prefer to use PayLater. Respondents said that BNPL helps them buy urgent needs (58%), enables them to shop with short-term installments (less than one year) (52%), and gives them access to more promos (45%).

Globally, PayLater is one of the preferred digital payment methods for the younger generations, such as Millennials and Gen Z.

In the United States, the number of BNPL users increased by 81% between 2020 and 2021. 40% of these users were Millennials and this number is expected to continue to rise until 2025. As of the end of 2022, Gen Z BNPL users have caught up, with 44% having used BNPL at least once during the year.

In Indonesia, although it is still less popular compared to other digital payment methods such as virtual accounts and QRIS, BNPL usage is growing significantly. Buyers–mostly Millennials and Gen Zs, use BNPL to purchase products like  smartphones, fashion items, phone credit, and other electronics.

One major driving force for the popularity of BNPL is the low credit card penetration rate among Indonesians. In fact, 88% of Gen Z do not have a credit card. . So, BNPL fills this gap and acts as an accessible alternative solution with a similar functionality in terms of providing credit.  

Its ubiquity on platforms usually used by Millenials and Gen Zs, such as e-commerce websites and online travel agents, only serve to add to its skyrocketing growth.

But that’s not the only reason why Millenials and Gen Zs use BNPL. On the whole, BNPL appeals to their unique worldview and lifestyle. Here’s how:

• They are a tech-savvy generation
  Millennials and Gen Zs are digitally literate. For them, online purchases are a way of life. They also tend to be more adventurous and open to trying something new, and this innovative and accessible digital payment method definitely fits the bill.
• Influenced by social media
  Millenials and Gen Zs are heavy users of social media, and the trends they come across there exert a strong influence over their purchasing decisions. Much of this is driven by FOMO, which stands for “fear of missing out”–a phenomenon where people feel anxious when they believe they might miss out on a rewarding or satisfying experience or event.Social media platforms are a major driver of FOMO, as they allow users to share images and updates about their experiences, creating a sense of competition and comparison among peers. To keep up with what they see in social media, many turn to PayLater as a quick and effective solution.
• They prioritize experiences
  Experiences are very important to Millennials and Gen Zs, so they often don’t hesitate to go all out when it comes to getting a unique experience. With many online travel agents (OTAs) such as Traveloka, Tiket.com, and more seamlessly integrating BNPL options onto their platforms, it’s easier than ever for Millenials and Gen Zs to use BNPL to finance the many wonderful experiences they seek.

How PayLater benefits customers

Here are some ways in which customers benefit from using BNPL:

1. Ease and speed of payment
   With BNPL, customers can buy products or services quickly and easily without the need to carry cash or use a credit card. This easy and fast payment process can help customers save time and energy.
2. Flexible payment options
   BNPL offers more flexible payment options, especially for customers who need products or services quickly but do not have enough cash or sufficient credit. Customers can choose a payment term, in the form of installments, that suits their financial ability.
3. Better security due to not carrying physical cash or card
   BNPL can be a safer option for customers because they do not need to carry any cash or credit card when buying products or services. This can help reduce the risk of losing cash or credit cards, or having them stolen.
4. Improve credit scores
   Using BNPL appropriately can help customers improve their credit scores because every transaction is recorded by credit agencies. Customers who show good payment compliance (e.g. always paying bills on time) can improve their credit scores and open up possibilities for better financial products in the future.

With these benefits, BNPL is an attractive alternative for customers who need products or services in a faster, easier, and more flexible way. However, customers should ensure that they fulfill their payment obligations and take note of potential additional costs that may arise from using BNPL services.

5 Business benefits of offering PayLater 

Now that you understand BNPL and its advantages, it’s time for you to consider adding this payment method to your business.

Here are 5 business benefits of offering BNPL as a payment option for your customers:

1. Reaching more customers
   You can reach more customers, especially those who are unbanked, i.e. those who do not have access to traditional financial services such as bank accounts, credit cards, or loans from official financial institutions.
2. Increasing sales
   If your business provides BNPL payments, customers can purchase products or services even if they do not have enough cash or balance in their account. With the flexible payment option provided by PayLater, they can afford to purchase higher-value items, boosting your sales numbers.
3. Improving payment success rate
   Credit-based payments like BNPL improve payment success because they eliminate the possibility of there being insufficient balance in customers’ accounts. This means more transactions go through, and your store’s conversion rate increases.
4. Getting upfront payments and protection from default and fraud risks
   As a business owner who provides BNPL payment options, you will receive the entire transaction amount upfront. Customer installments will be fully managed by the BNPL service provider. As such, you don’t need to worry about customers not being able to make repayments or fraudsters abusing this payment arrangement.
5. Improving customer experienceB
   y offering easy installment options, you can provide a good payment experience to customers, as they can adjust their payments according to their budget. Not only that, but you will also create a better overall customer experience, as customers will be able to fulfill their needs and wants despite their budget constraints.

PayLater channels in Indonesia

Here are some of the top BNPL channels in Indonesia that you can consider for your business.

What’s the easiest  BNPL solution for your business?

The simplest way for your business to provide comprehensive BNPL options for your customers is by working with a payment gateway that offers integration with many of the most popular BNPL providers in one go.

Xendit is one such payment gateway that allows you to easily connect with the top BNPL channels in Indonesia through one easy integration. 

You can choose from several integrations to enable this payment option. Once BNPL is activated for your business, you get access to all the BNPL providers working with Xendit, without the need to activate each paylater service provider individually. 

By integrating with Xendit, you can provide BNPL payments through:

• Xendit Dashboard
• The payment link feature
• API integration
• Integration with your online store through several popular e-commerce builders such as WooCommerce, Shopify, Magento, Wix, and Ecwid.

Have a look at how some businesses have benefited from providing PayLater option via Xendit.

Create your free account with Xendit now and activate BNPL payments with just a few clicks. If you have further questions regarding BNPL or our other 38+ digital payment methods, feel free to contact our customer success team –anytime, 24/7!