Buy now, pay later (BNPL), also known as point-of-sale installment loans, is a payment option that is becoming a popular choice among consumers who are looking to better manage their spending on retail purchases.
As global retail-commerce sales are expected to climb to USD $7.4 trillion by 2025, much of the growing success in this industry can be attributed to the more advanced offerings retailers provide their customers to remain ahead of the curve. Increasing amounts of retailers are looking to offer their customers more personalized options, not only with the products/services they offer but also with what comes after customers add items to their cart – the check-out process.
Crafting an optimized online customer experience is a key component for success, but finding ways to achieve this should not end as soon as the customer clicks “Buy Now”. As more consumers are considering how they will pay for the items they want much earlier in the buying process, implementing options such as BNPL is just one of the ways retailers can stand out from the competition and better meet the growing needs of their audience.
What Is Buy Now, Pay Later (BNPL)?
The term “buy now, pay later” is very indicative of how this process works. First, a customer buys the item(s) from the retailer and pays a smaller, initial amount upfront (typically a percentage of the total purchase cost). Next, the customer will then receive their order just as they would if they purchased the entire amount, but will instead pay off their purchase in fixed installments set for future dates. Many BNPL plans are interest-free, which makes it an appealing option for customers who cannot pay for their item(s) all at once when they check out. However, some retailers and the third-party BNPL companies they work with to offer this payment option will conduct a soft credit check first before allowing the customer to select this option.
Paying for items in installments is not necessarily new. Popular in the 1930’s up until around the mid-1980s, layaway was a popular option which involved the retailer reserving an item that a customer wanted for a period of time until they paid all of the installments. It was only then would the customer receive the item. This is vastly different from what BNPL offers customers, which makes it a more modern and appealing approach for retailers to implement, especially since consumers are looking (and often expecting) to receive their items quickly – it’s a win-win.
The Rise In Popularity Of BNPL Options
In 2021, the global buy now, pay later market size was USD $5.01 billion and is expected to have a 26.0% compound annual growth rate (CAGR) from 2022 to 2030. This is a significant number and helps highlight how popular BNPL options will be as more retailers implement the payment option. Specifically in Canada, BNPL will have major growth with a CAGR of 36.1% from 2022 to 2028, while US consumers purchased almost $100 billion in retail purchases using BNPL options in 2021, compared to $24 billion in 2020. But where is this popularity coming from?
Millennials make up the largest generation in the US to use BNPL options (41%), with Gen Z not far behind (36%). Meanwhile, Gen X and Baby Boomers reported the lowest adoption of BNPL. Similarly, a recent survey found that Canadians between 35 to 44 years old had the highest interest in BNPL (65.4%), with not as much interest from shoppers aged 65 years old and older (47%). However, do not let the latter statistic sway your decision to implement BNPL options, as it’s important to consider which generation shops online on a more consistent basis – millennials (aged 26 – 41 years old).
In the US, 44% of millennials say they shop online on a daily or weekly basis. Therefore, if this younger generation finds BNPL options more appealing, and they are also the ones who spend a lot of time making online purchases, catering to this generation by offering BNPL options can be extremely beneficial for retailers to implement.
Benefits Of BNPL For Customers
To determine if your retail business should offer BNPL, it is important to consider the benefits for your customers.
First, and one of the biggest benefits of BNPL options is that it helps customers get the item they want, even if they cannot afford it right up front. Maybe they are waiting on a paycheck or they are on a budget – whatever the reason, BNPL offers flexibility with something that has not always been so flexible. Another reason why customers can opt for BNPL is to eliminate the need for additional payments (i.e., interest) on their credit card if they were to use it for the purchase. This is what helps make this payment option so convenient and easy to use, as customers receive a clear outline of what their future payments are, without acquiring interest (in most cases).
A study from the Financial Consumer Agency of Canada reported the top three reasons why BNPL was used: to help budget, unable to afford the entire purchase, and to avoid interest and fees. Follow-up interviews were also conducted and it was found that BNPL made payments more manageable, while also allowing for more time when they did not have the available funds at the time of purchase.
Benefits Of BNPL For Retailers
There are many reasons why a retailer may want to implement BNPL options, but one of the most significant reasons is that it helps eliminate the chance of missing out on the sale altogether if the customer cannot afford the full cost of an item upfront. In other words, if the customer can pay in installments, they are more likely to make the purchase (especially big-ticket purchases) and less likely to abandon their cart, which is beneficial for retailers.
Similarly, the idea of paying in installments means the initial upfront cost is low, thus making the idea of purchasing items much more appealing, especially for younger generations that cannot afford higher-priced items and for those impacted by the growing costs caused by inflation. This creates a greater customer experience for anyone using the payment option since it offers a more personalized approach to retail, which consumers appreciate.
It is important to note that just because the customer pays in installments, it does mean the retailer does not receive the full payment. The third-party service that the retailer works with who offers the BNPL to customers is the one that pays the retailer upfront. The customer then pays the third-party service in installments. That way, the retailer does not miss out on the profit – another significant benefit.
Despite BNPL growing at a steady pace, there are still many retailers who have not implemented it. Jumping in on this trend now can set your retail business up for success, as consumers who already use this payment option will often look for businesses that offer it. It also tells your customers that their needs are top of mind, which increases brand loyalty and trust, making it a win-win situation for retailers and customers alike.
About Reshift Media
Reshift Media is a long-time partner of the Retail Council of Canada. The company is a Toronto-based digital marketing and development organization that provides leading-edge social media, search and website/mobile development services to retailers around the world. Please visit www.reshiftmedia.com to learn more.