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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.

Comments

Thanks Amit for sharing the new buying options for consumers. can you elaborate more on Layaway model, which seem to be not logical to me, why would a customer block the product and keep paying the total sum in installments and collect the product when all the sum is paid off? he/she might accumulate that money in the bank and buy the product when he is ready with all the sum, by then he would even find a product with better spec.

can you help me understand my questions?

Thanks
Narasimha

Narasimha,
Thanks for reading my blog and commenting on it.
To answer your question, layaway as a payment option is quite common in western countries and Australia where it is called lay-by. In these countries, the most commonly used payment method is the credit card. However, there may be certain consumers who may not have credit cards (ineligible or simply due to a bad credit history.) but who want to buy an expensive item (say, a 46 inch LCD TV). This option is hence popular where the customer only pays a small fee without risking a debt trap and a guaranteed availability of the product. I am not sure about your second question though on why people do not accumulate the money in the bank. There is of course, the risk that the product may become costlier or a better version may appear in the market making the layaway item obsolete.

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