Layaway and Buy Now Pay Later Payment Options!

In my previous blog, I had talked about the Cash on Delivery payment option. A couple of other payment options, which were in vogue earlier and are now making a comeback due to the recession, are Layaway and Buy Now Pay Later (BNPL).

The ongoing recession has forced retailers to innovate and encourage customer s to shop and spend. Layaway and BNPL are two options encouraging the customer to shop now and pay at a later date.

Layaway:
• The customer selects the product that she wants to buy. (Not all products may be covered by the Layaway program; this is reserved for high value items such as electronics, home appliances etc.
• The customer may be required to pay a deposit depending on the retailer‘s layaway policy.
• The customer signs a contract with the retailer and pays the balance amount in the form of interest-free equal monthly installments.
• The item selected is stored in a separate layaway location at the store or a warehouse until the entire amount is paid by the customer.
• Once the item is paid for completely, the item is shipped to the customer or picked up at store.

Buy Now Pay Later:
• The customer selects the product that she wants to buy. (Not all products may be eligible for BNPL)
• The customer walks home with the product and is charged after a ‘free period’. For e.g., a customer may shop for a home theatre and pay for it after a period of 3 months.

These options allow the retailer the following benefits:
• Encourage customer s to shop; their presence in the store to purchase a specific high value item may result in other impulsive spend.
• Service differentiation w.r.t other retailers

However, it may result in an increased cost of sale for the retailer (layaway item storage) and accrual of the sale may not be immediate.

From the customer’s perspective, it allows them to shop without running the risk of falling into a debt trap, which may occur if payment was made by a credit card and the customer fails to pay the credit card company in time. In a layaway program, the retailer may choose to deduct a small administrative fee and refund the customer money if she is unable to pay the entire amount.

Please let me know if you have any thoughts on this blog.