Overview
When you hear the term instalment payments your mind may wander towards large purchases such as a car, furniture, or other similar items with a significant price tag. But as consumer demands are changing, and so is the mentality surrounding payments. In the past a customer could pay with a credit card and then make their own decision about how much to pay off and when. However, this is now no longer the only option to consider.
Known as buy now pay later (BNPL), what started as a more localised trend, and primarily a tool for online shoppers, has gained traction around the globe and is finding its footing in the tourism sector as well. And when it comes to attracting customers, particularly when there’s a larger cost with your tours, setting up an option for instalment payments is definitely an option worth giving a second look.
How it Works
For Businesses
Ultimately, there is less of a noticeable difference in terms of the transaction for the vendor than you might think. No matter the payment company, vendors receive the full value upfront, with the average processing time being 1-3 days. As with credit cards, the vendor is responsible for taking on the fees. In terms of the actual cost for the vendor, this also varies with companies offering different payment models whether it’s a fixed amount per transaction, a percentage, or a combination of both.
For Consumers
As the market space continues to grow, there are a variety of companies offering BNPL services, and the specifics in terms of how many payments, over what time period. Some take the price and divide it into a fixed number of payments (on average between 2-4 payments). As they have your banking information, some companies will automatically make withdrawals from your bank account, and others require the consumer to make the payments. Reading the fine print is key.
For the consumer, depending on the platform if they make all their payments according to the payment schedule with most companies there is no interest, as long as they make the payment. However, a missed payment incurs a late fee, and extending the payment period to substantially longer time frames, such as 12 months +, can then also mean an additional interest charge for the consumer. If the consumer meets the deadlines and makes their payments, then once the value is paid off, the transaction is complete and they can be on their way.
The Appeal of BNPL and What Makes it Different Than Traditional Credit Cards
If you run a tour with a higher price tag the upfront cost can potentially deter customers. However, even for day tour operators, the ability for travellers to temporarily put off the payment can alleviate financial stress. For some, in particular younger millennial and now Gen Z consumers, or those with past financial challenges, there can be additional barriers to accessing credit in the traditional sense. Additionally, customers may face the challenge of a credit limit that wouldn’t allow them to make a large purchase, as with a lower barrier to entry, there is a lower limit to accessing larger sums of capital.
The appeal for businesses is increasing their customer base, and the appeal for consumers is increased flexibility when it comes to payment. These companies also take on the risk of chargebacks or fraudulent claims, as you’ve already been paid, so that’s one less thing you have to worry about as a business owner. It’s also worth considering integrating if you also run an online store(opens in a new tab) as part of your business.
Challenges of Instalment Payments
Like anything else, the ethics of credit and debt are the individual consumer’s responsibility. The appeal of buy now pay later is greater access to capital to make purchases such as your tours. You as a business owner are looking out for the best interest of your own bottom line, and this is simply another option to collect payment. As this is still a relatively new concept (or variation) on traditional payment methods, it is to be expected that ongoing regulatory changes will take place.
The other major challenge is customer demographics. BNPL may appear seemingly pointless to those with strong and available credit, or simply the funds to pay the full balance upfront. But at the same time, customers appreciate choice. It’s crucial you understand your customer persona in order to understand their financial habits. And this doesn’t have to come down to an all in or out situation, in particular if your tour appeals to multiple consumer types. Start by learning about all the different payment gateway options available(opens in a new tab).
Next Steps
If you’ve decided that BNPL makes sense for your business and customer demographic, the next logical question is which BNPL company should I sign up with? The simplest way to think about it, is the same way you do with a booking software. Ultimately, which booking software you choose to use, or whether you choose to use one at all, is quite a personal decision for you as a business owner.
These are some of the main players in this field at the moment. Some have geographical restrictions, others are currently more aligned with retail shopping (though not exclusively), and again, the pricing model for the vendor charge varies. Check them out, and if you’d like to integrate one of them into your tour website, let us know(opens in a new tab) and we’ll help you get set up!
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