Buy Now Pay Later: One More Convenience Evolution

From gold, cash and certified checks through to credit cards, digital wallets and cryptocurrencies, the world of payments now contains a litany of terminology, acronyms, governing bodies, networks and technologies. As obvious as it may be, what you should remember is that the one factor all these entities have in common is humans trying to find an ever-quicker and trusted way of exchanging resources.

With hotels as no exception, payments will always evolve in the direction of fast, fair and frictionless – the three Fs. Digital wallets like Apple Pay and Google Pay fit the bill (pun intended) because they allow consumers to forego carrying around a physical wallet while preserving simplicity and safety. Likewise, the current shift to QR-code portals powered by single sign-on (SSO) functionality and (soon) biometric payment portals will come to be preferred by hotel guests because they are even more of the three Fs, albeit not without their kinks that still need to be ironed out.

This brings us to the burgeoning array of Buy Now, Pay Later (BNPL) platforms and how they can help hotels increase revenues by enhancing the overall convenience to the guest. As an evolution from more classical methods of payment finance, these tailored pay-over-time platforms have been shown to increase conversion and total spend (in retail, often called ‘cart size’), and there’s no reason why they can’t do the same for hotels if you stay cognizant of their drawbacks. Without namedropping any specific vendors and getting into apples-to-apples feature comparisons, what matters most are the psychological principles underpinning BNLP and why these systems are important right now.

The Macroeconomics of Why Now

Despite any recent reworkings of the exact definition of a recession by various institutional authorities, depending on who you ask we are either on the precipice or already deep into one. This current state of the economy is significant for any fintech discussions because an increasing number of hotel customers will be struggling with personal finances and thus more strongly influenced by adaptive, pay-as-you-go schemes that hotels, or any merchant for that matter, can extend.

Don’t get us wrong; we are not harbingers of doom with this recession talk. In fact, we’re futuristic optimists, especially for hospitality. Despite this suggested decline in disposable income for the near-term, travel will increasingly become a defining aspect of people’s lives over the next decade and beyond. Call it ‘purposeful travel’ or ‘the intrinsic need for memorable experiences’, but with the ability to move freely about the world taken away from all of us due to the COVID-19 lockdowns everyone now wants to get out there and self-actualize through travel.

Young, old, leisure, corporate, luxury or regular schmo, we all want to travel. And travelers will opt for any means necessary to make this dream a reality, including opting for those hospitality brands that offer interest-free BNPL options – brands that give them even more of an ‘urge to splurge’ if you will. And note here that, while luxury consumers may be more apathetic to this pay-over-time evolution, this does not preclude them from rate comparisons or being attracted to value-added packaging.

BNPL as a Part of a Brand Vision

From a psychological standpoint, this flexibility reduces the immediate stress for the payee. For people who want to travel but are struggling to pay the bills, ponying up for a weeklong hotel vacation or any other form of reservation can be a deeply traumatic event, so much so that it may delay or deter a booking altogether. With the advent of zero-interest payment financing, these BNPL platforms may be preferred over the higher credit card interest. In this sense, offering pay-over-time checkout options acts as a way to garner more trust and convert more reservations on the spot. It can also drive more direct bookings versus the OTAs that may not be willing to offer these forms of installment transactions.

Still, there’s a crucial, cold and wholly pragmatic business question that you have to ask yourself at this juncture. Given the socioeconomic framework that governs the type of hotel guests more likely to be incentivized by BNPL availability, does this psychographic conform with your brand vision? This is a polite way of inquiring if, by enabling people who stand a greater chance of delinquency, are you also inviting a less-than-savory lot that may cause more problems than they are worth?

Many BNPL providers have been criticized for performing softer credit checks than credit card operators, with words like ‘predatory’ often thrown around by their detractors who foresee consumers surpassing an untenable threshold of debt through the accrual of regular credit card, household and now BNPL bills. From our experience as asset managers and owners’ representatives, there is a nonnegligible correlation, albeit loose, between the guests who haggle over payment terms or nightly rates and those who end up initiating chargeback disputes, complaining on online review websites, leaving the room in a disorderly state to bog down a housekeeper’s cleaning schedule or worse. Review your own guest data, but this is our experience thus far.

You have to decide what brand you want to be, what types of guests you hope to attract and whether or not BNPL will complement that direction. For any brand that is economy, select service, limited service, midscale or drives much of its current revenues from the OTAs, our recommendation is to investigate platforms that do indeed offer BNPL functionality.

Guest profiling issues notwithstanding, merchants need not worry about delinquencies per se, but the trade-off is that BNPL platforms charge hotels a significantly higher merchant discount rate (MDR) over traditional credit card interchange fees – often more than 1% extra – which will ultimately cut into your margins. And that MDR only increases with the degree of risk assumed by the BNPL provider.

If It Ain’t Broke…

When undertaking any consulting assignment in the realm of hotel technology, one of the core mantras we apply is, ‘If it ain’t broke, don’t fix it’. That is, for tech hotel stacks, while it is entirely possible to rebuild your systems and interfaces from the ground up, it’s most likely not feasible. You have a live and highly fragile product – guestrooms that need to be sold, serviced and cleaned every day of the yearly calendar – but, significantly, you have the ‘human stack’ to consider.

While the current labor crisis is generally lensed around the dearth of available associates, it is also affecting the IT department. These professionals are a rare find and an increasingly expensive one to keep from jumping ship to another property, brand or industry where the salary and upward career prospects may be more lucrative. So, while it’s all swell to talk about then plan to bolt-on a new layer of payment financing, does your IT team have the bandwidth to properly vet, install, build the required interfaces, develop SOPs and maintain this new technology product?

However mature the APIs are or how straightforward an SDK is, all this still needs to be configured on the merchant, or hotel, side. Even after accounting for factors like the larger MDR along with the potential for a boost to funnel conversions and cart size, there are hidden labor costs that may be too much at this juncture, especially for smaller brands with only a fire team of technologists to call upon.

Deepen Your Existing Partnerships

With these human factors in mind, the BNPL pivot for the immediate term – for at least until this travel recovery period is ongoing and labor persists in its logjam – is to first ask what your existing vendors can do in this regard. It’s not just about what platforms are the most compelling for your guests, but also what ones are the easiest for your teams to set up then regularly operate.

In this regard, one niche technology where we foresee BNPL reaching rapid scale in hospitality is via card-not-present (CNP) payment platforms. While it would be great to see the myriad of website booking engines (WBEs) offer user-friendly interfaces for selecting BNPL versus payment in full via a convenient dropdown-style widget, these may not be ready for a few business cycles given the obstacles of requiring real-time connections with the PMS, CRS, POS or payment gateway.

Instead, most CNP platforms already offer hotel teams an intuitive and secure portal through which to manually prepare installments with manager notifications of both successful and missed payments, albeit most of these features were intended for parsing out large group masters or event folios. It’s a classic case of a ‘workaround’ where CTA messaging can be prominently placed on the WBE telling guests to use the voice channel to inquire about BNPL options. As well, a key word to remember here is ‘secure’, whereby these CNP platforms, if they meet PCI DSS standards, can also offer protection from chargeback losses.

Still, the point remains. With time as the limiting resource for most hotels, deepening your relationships with your existing vendors is the best path forward. Reach out to them; attend their user conferences; educate yourself on their new features and their near-term roadmaps. If or when you decide that Buy Now, Pay Later is in the cards for your brand, you will have to move quickly to adopt new practices in order to gain awareness amongst travelers as the brand of choice for tailored payment financing.