Buy Now Pay Later (BNPL), once exclusive to high ticket items like furniture, electronics and cars by their respective retailers has now expanded into what seems like an ever present option for all kinds of items from groceries and personal care items to fitness equipment, appliances, travel, healthcare and more. What has changed is that there are now specific services such as Klarna, Afterpay, and Affirm which manage the process, paying retailers and taking on the risk for the payment, for a fee of typically 2% to 8%.
Buying products and services on what is essentially a no-interest installment plan gained great traction in the past few years. Insider Intelligence predicts BNPL will grow from a projected $75.6 billion in sales this year to more than $100 billion in 2024. While more than a quarter of the US population will avail themselves of this purchase method in 2022, among Millennials and Gen Zers the rate is 50%-60%. Usage is also higher among minority consumers; Black and Hispanic purchasers are twice as likely as white buyers to use BNPL. Those with $50,000-$75,000 incomes are somewhat more likely to use the services but consumers across all income groups choose the delayed payments option.
Advantages of Buy Now, Pay Later
Consumers can choose to BNPL as they buy online, often seeing the option before putting an item in the shopping cart, which can prime them for interest in the product. Knowing they can make four payments of $50 vs. one of $200 can make potential customers much more likely to put that item in their shopping cart.
BNPL offers advantages to both consumers and retailers.
- Payments can be spread out over time.
- Credit card interest can be avoided.
For retailers, the advantages are particularly compelling:
- Risk of consumer default is minimal.
- Payment option can be offered across multiple points of sale
- Conversion rates and average order values go up as consumers purchase items/services for which they can spread out payments.
- Cost of service may be comparable to credit card fees.
Learn More About Payment Options and How to Market Them
BNPL is not likely to go away. It appeals to both buyers and sellers. Particularly at a time when inflation is high, spreading out payments is a way consumers can continue to buy discretionary products and services that might otherwise seem out of reach.
A number of our clients have been offering BNPL options to their customers with great success. At Marketsmith, we can help you understand audiences better so you can make informed business decisions. Don’t try and guess what your customers want, find out for sure! Contact us today to learn more.