The pandemic ushered in an e-commerce retail renaissance, as well as a surge in the popularity of Buy Now, Pay Later (BNPL) services. Affirm, AfterPay, and Klarna are examples of Buy Now, Pay Later (BNPL) companies that have received a lot of attention in the last year as consumers sought ways to make it easier to buy what they wanted without adding to their credit card debt. The following are recent developments:
- Amazon and Affirm teamed together. Customers who spend $50 or more on Amazon will be able to break their purchases down into smaller, monthly payments. Some loans will have a 0% APR, while others will charge interest, according to Affirm.
- On BNPL payments, PayPal will no longer charge late fees. More than 7 million people have utilized PayPal’s BNPL service since its introduction, spending more than $3.5 billion on goods.
- AfterPay was acquired by Square. AfterPay’s merchant relationships will be integrated into Square’s seller ecosystem, assisting in the conversion of AfterPay’s existing customer base to Cash App customers.
- Apple has announced the launch of a BNPL service. With certain plans, Apple Pay customers will be able to make interest-free BNPL purchases, pay with any credit card, and avoid late and processing penalties.
In the United States, the percentage of Gen Zers who use BNPL has increased sixfold, from 6% in 2019 to 36% in 2021. Since 2019, millennials’ use of BNPL has more than doubled to 41%. Adoption among Gen Xers has more than tripled, and even Baby Boomers are becoming involved.
In 2021, consumers will use BNPL programs to make approximately $100 billion in retail purchases, up from $24 billion in 2020 and $20 billion in 2019.
So, What is BNPL?
The system, as the name implies, allows customers to purchase a product and pay for it later after a set period of time. The period allows you to purchase things from its partner merchants and pay for them over a period of say 10-15 days. However, if a customer fails to pay their account on time, they will be charged interest based on the amount owed.
Customers can break a purchase into no-cost EMIs for three to six months, during which time the bill must be paid. Amazon Pay, LazyPay, Simpl, Slice, and ZestMoney are some of the fintech companies that provide BNPL services.
For example, your local store or milkman may have permitted you to make purchases during the month and kept track of everything you bought. The accumulated amount is usually paid at the end of the month or on particular and agreed-upon days of the month. The creditor may have agreed to allow you to pay in easy, interest-free installments over a few months. That is exactly what it means to “Buy Now, Pay Later.”
The Reason Behind BNPL’s Growing Popularity
BNPL allows consumers to purchase products that might not have been able to afford otherwise by providing a more flexible, less expensive alternative to spread out a payment. Customers register, go through an initial “soft credit check” with the BNPL provider, and receive approval in a matter of seconds. Customers can usually specify their payment plans at checkout, ensuring that digital natives get the fast, smooth experience they expect.
BNPL’s services are rising at 39 percent per year, with the company’s market share expected to treble by 2023. By then, BNPL services will account for 3% of worldwide ecommerce spending. In addition, 85 percent of customers who have used BNPL services intend to do so again in the future. Despite the fact that many BNPL suppliers are new to the market, others are already profitable, indicating that the business model is likely to persist.
Benefits to Merchants
Offering clients’ preferred payment methods, unsurprisingly, can result in a big increase in sales. However, with BNPL, retailers have an even stronger, more compelling motive to participate.
Customers that utilise BNPL are likely to spend more, according to multiple studies. According to an AfterPay poll, 42 percent of Gen Z and 69 percent of millennial customers are more likely to buy things if BNPL is available. While it could be argued that originating from a BNPL provider is biassed, other recent study supports this.
According to the PYMNTS BNPL tracker, nearly half of the consumers polled (48%) would not buy from a merchant that did not accept BNPL payments. According to another study conducted in the states, 45 percent of consumers use BNPL at least once a month – or more – and almost half (47 percent) of online shoppers use it “most of the time” or “every time” they browse for an item.
The Future of Buy Now Pay Later
In order to prosper and stand out, BNPL providers must:
- Make them become shopping destinations: For example, Afterpay has stated that it will allow its merchant partners to advertise on the BNPL firm’s app in order to promote their promotions, products, and deals. Brands will be able to choose which goods to promote through sponsored listing formats, and will only be charged when a shopper interacts with the ad.
- Improve the accuracy of their sales attribution claims: According to BNPL suppliers, they assist merchants in making sales that would not have been made otherwise. Does this ring a bell? When Visa and MasterCard were first introduced, they both made the same claims regarding credit cards. Accurate attribution statistics will be demanded by today’s businesses.
- Specialize: Customer journey mastery will be required of BNPL providers. Few (if any) will be able to do so in more than a few product categories, leading in product category specialisation. With BNPL specialists like LoanStar Technologies in home remodelling and Prima Health Credit in elective medical procedures, this is already happening.
There are several compelling – and potentially profitable – reasons for retailers to provide customers with BNPL options. However, it’s apparent that being able to offer the BNPL brands that are suited for a merchant’s target demographic – such as Afterpay, Klarna, and Affirm – is critical. Not only to stay competitive, but also to be relevant with tomorrow’s shoppers today and to continue to grow revenue streams.