While many consumers are still wary of, or even unfamiliar with, the multitude of Buy Now Pay Later (BNPL) companies popping up in every major economic landscape, the fact is that the BNPL industry is thoroughly disrupting the world’s perception personal finances and is poised to flip the brick-and-mortar banking and credit industries upside down.
Fueled by the drastic and unexpected societal changes brought about by the COVID-19 pandemic, the field of eCommerce is ballooning at an unprecedented rate.
The BNPL sector alone is projected to see over $250B in spending in the year 2025, which is right around the corner in the business world.
However, with the proliferation of BNPL solutions taking over the marketplace, the cost of acquisition per client is increasing and the overall Lifetime Value is decreasing. So how can serious BNPL players utilize smart data about Small and Mid-Sized Businesses (SMBs) to stay ahead of the curve and ensure consistent profitability? ¹
Basic Unit Economics of a BNPL
Let’s take a $5M annual revenue eCommerce business as an example – about 10% of the total revenue of the business, $500K, will come from customers who select to use any available BNPL solution. If there are two BNPL solutions available to customers on the website, then the revenue share decreases to $250K gross revenue processed by a single BNPL.
Most BNPLs make their money by charging a commission rate of 2-4% to their eCommerce client; the transaction costs for the BNPL usually amount to approximately 1%, leaving 1-3% of ‘meat on the bone’. This means that the BNPL’s revenue is conservatively around $3,750 per year from a customer whose overall revenue is $5M.
If the costs stop here, then this is a fantastic revenue per SMB. However, when we consider the costs of integration involved in the fiscal relationship, which the BNPL usually absorbs, then we see that the BNPL breaks even only in the second year if the data are consistent.
Utilizing Smart Data to Improve the Unit Economics and Lifetime Value
As the Digital Information revolution seems to be at a roaring peak all around us, transforming our daily lives in every aspect, from commerce to politics to dating, the abundance of available raw data has become unprecedentedly expansive.
BNPL services are growing at a rate of 39% a year, with its market share set to double by 2023. By then, 3% of global ecommerce spend will be through BNPL services. What’s more, 85% of consumers who have used BNPL services plan to continue doing so in the future. Consequently, it can be easy for SMBs to get lost in a sea of irrelevant or obsolete data due to the huge variety of data types, methods of analysis, and the lightning speed with which new data become available, rendering yesterday’s epiphanies outdated and useless.
Smart Data refines and tailors the parameters to provide real-time information based on a system of industry-specific tags and triggers designed not only to guide BNPLs and other market players to the right SMBs, but more importantly, at the right time! Analyzing the appropriate market factors in real-time can have a big impact on how quickly your BNPL achieves profitability from an SMB.
The 5 segmentation tools every BNPL marketing and sales team muse know.
Using smart data BNPL marketing and sales teams are using segmentation tools to identify high growth SMBs that can support a profitable BNPL business model. Here are top 5 rules used by leading BNPL teams:
1. Search for SMBs with annual revenues that can support your business model.
2. Create a scoring system for target SMBs based on their average transaction value and growth signals (e.g. hiring, traffic, advertising spending, new domains etc.).
3. Tag companies with existing identified BNPL provider/s.
4. Tag SMBs that operate an eCommerce stack with which your BNPL can easily integrate.
5. Update your data base and nurturing lists on a regular basis with fresh data using change triggers to know which SNBs recently added and/or removed a BNPL provider.
Smart Decisions with Smart Data
No matter what you’re looking for in terms of new revenue streams, accurate information is essential to making smart decisions. Here are some real-world scenarios to inspire your next decision:
- Are you looking for growing SMBs with less than $1M revenues that don’t yet have a BNPL provider? Then check out Gray’s Tire Center!
Across six locations in Alabama, this tire and automotive service offers five financing options but doesn’t currently have a BNPL provider. Our smart tags and triggers identified Gray’s as a fast-growing business that is primed to be approached.
- Do you have a competitive offer for SMBs offering one BNPL plan? Then you’ll need to know who their current payment provider is in order to make an even more compelling offer. Well, look into what we have on Azzoro Living!
This UK-based furniture store also operates an online store where they use Shopify and PayPal, plus they currently use Klarna for their BNPL needs. Does your solution integrate well with Shopify and PayPal? Then make Azzoro an offer!
- Are you looking for new SMB segments for which you can be the BNPL provider? Then it can really help to focus your search. For example, it could be worthwhile to search for clinics that have more than one location + are expanding + are using online eCommerce platforms and services.
Perfect Balance Clinic is just one of the actionable results you would get from such a search: a multi-location osteopathy and physiotherapy clinic that has set off more than a few of our triggers. Not only has their online traffic grown more than 30% in a month, but also they recently expanded and added a new location.
Ready to make an offer? Then it will help to know that they currently use WooCommerce and Nookal (health clinic software management service) so you can prepare your pitch accordingly.