Previously dubbed a “niche form of credit,” Buy Now Pay Later (BNPL) opportunities have burst onto the scene, growing more in popularity, even more so during the pandemic.
BNPL refers to a service that allows consumers to purchase a product instantly, but delay full payment until a later date. These payments are made in installments that are previously agreed upon and are interest-free, so long as they are paid in full by a specified date.
Buy Now, Pay Later…A Must-Have For e-Commerce
Installment payments are beneficial for consumers since it offers them options and convenience when it comes down to managing their budgets. This option is also known to increase trust between consumers and retailers. All this translates into more sales, “higher average purchase sizes”, and a greater frequency of purchase.
Current BNPL companies such as Affirm, Afterpay, and Klarna, are a big draw for younger shoppers, like Gen Z and millennial consumers.
These installment plans are also popular with the segment of the population that does not have access to credit or does not want to purchase with a credit card. This alternative also benefits those who don’t have the full amount of funds needed to cover the entire purchase but will have access to funds at a later time.
According to Affirm, merchant clients have reported an 85% increase in “average order value” when consumers choose the BNPL plan over other payment options.
Klarna’s client base has reported a 45% increase in “average order value” when a consumer pays over four installment payments.
It was estimated that about 93% of Afterpay’s “gross merchandise value” in its last fiscal year was drawn mostly from repeat users of this payment service.
According to Chris Ventry, vice president at global consultant group SSA & Co:
“Installment payments allow the retailer to “˜convert a [consumer’s] wish into a sale. It eliminates the ability-to-pay roadblock. For those using debit cards, the potential for an extended interest-free payment schedule through BNPL is enticing, ultimately enticing enough to drive conversion, which is the primary goal of all digital commerce sites”.
Everyone Wants In…Should You?
BNPL seems to have many benefits to incorporate into your business. Let’s take a look at a few:
- Attracting New Customers: By offering BNPL, retailers now have a new way to draw customers. What retailers both online and in-store are seeing is “higher spend per visit” and an “increased acquisition of new younger customers.” Macy’s CEO, Jeff Gennette reported that 45% of new customers were under 40 years old.
- Increased Conversions: According to an analysis performed by Similarweb, fashion and retail websites that offered a BNPL option witnessed a conversion rate of 6% in contrast to 4% for those who did not.
- Opportunities For Growth: Globally, BNPL is the fastest-growing e-Commerce payment option. In 2019, the BNPL market, currently worth $60 billion, made up 2.6% of global e-commerce. This does not include China.
It is clear that consumers have been given the green light and continue to vote for the use of BNPL with their credit cards. However, BNPL still operates in a relatively new environment and with little to no regulation or constraints. Also, at the end of the day, customers are still signing up for a loan in which there are steep fees to pay if their end of the agreement is not met.
A Burgeoning Industry At The Cost Of The Consumer?
What has caught the attention of politicians and regulators is just how easy it is for customers to spend, sometimes more than they can actually afford. This could potentially lead to crippling debt.
The way things stand, with BNPL, consumers now have access to credit that they perhaps would have never been able to obtain otherwise.