3 Ways Buy Now, Pay Later Attracts Retail Customers

    If you offer Buy Now, Pay Later (BNPL), customers will come.

    A BNPL loan, or financing at the point of sale (POS), is the only unsecured-lending payment class that experienced high-double-digit growth through the COVID-19 pandemic, according to McKinsey data. And it continues to grow rapidly. BNPL is projected to be an almost $40 billion market by 2030. In fact, globally, 56% of consumers in a recent PYMNTS.com study say they prefer BNPL over credit cards.

    This alternative payment method is obviously appealing to consumers, due to its installment payment schedule and little or no interest charges. It’s also a boon to merchants. Instead of getting paid by credit card companies, retailers receive payment from the BNPL service providers, who assume risk for the entire payment. The retailer receives the payments in full, generally within three business days, minus a service fee.

    So, yes, BNPL payments make paying easier and smarter, for consumers and merchants. But they’re not just about closing the transaction. Rather, they appeal to today’s younger customers in ways that bring merchants customers.

    A deeper dive into the reasons why BNPL attracts those consumers helps provide insights that drive behavior.

    1. Reaches Technology Natives (Millennials and Generation Z consumers)

    Cash is a foreign word to many Millennial and Generation Z consumers. They are the early adopters of mobile wallets and Paypal and Venmo, so it’s no surprise that these digital natives are the most interested in point of service payment options, including BNPL.

    And this group of BNPL users is growing fast, according to a Forbes.com article. In the U.S. alone, Generation Zers in the US using BNPL has increased to 36% in 2021, from 6% in 2019. Millennials’ have doubled their used of BNPL from 2019 to 41% in 2021.

    Technology is also a key driver of purchasing decisions for these younger consumers.

    According to a CNBC interview with a group of Millennial and Generation Z BNPL users, social media and TikTok in particular have created a culture where people overspend, which has contributed to the growth in BNPL for younger consumers. In fact, many BNPL platforms are using TikTok for paid advertising campaigns with influencers.

    Social media also influences the purchase of luxury products, especially for younger generations.

    While 73% of luxury shoppers purchased a product after learning about it on social media, those numbers increase to 84% of GenZers and 78% of Millennials. The most popular social media platform informing luxury purchases for GenZers (77%) and Millennials (63%) is Instagram. Facebook is the driver of luxury purchases for Baby Boomers (77%) and GenXers (63%), according to a recent Klarna report.

    This influence has led to a surprising fact: younger consumers are now more likely to purchase luxury items than older generations.

    As reported in the Klarna report, within a 12-month period, 63% of Millennials and 60% of GenZers purchased luxury items, vs. 46% of GenXers and 18% of Baby Boomers. Those consumers are also looking for flexible payment options: while 84% of all luxury shoppers are interested in pay over time options, Millennial (89%) and Generation Z (87%) consumers are interested in splitting interest-free payments over time.

    BNPL companies are beginning to capitalize on the interest of their younger consumers by positioning themselves as integrated platforms that combine shopping with consumer financing, according to a recent McKinsey report. This will provide them with an additional revenue stream (affiliate fees), a way to counteract the effects of rising interest rates which increase the cost of funds, and a strategy to build customer loyalty.

    1. Provides an Attractive Alternative to Credit Cards

    Credit cards, a staple in the wallets of many GenXers and Boomers, is embraced less by younger generations. Today, 55% of eligible GenZers hold a credit card, compared with 66% of millennials, 77% of GenXers and 85% of baby boomers.

    One reason? It’s harder to get a credit card before age 21, thanks to the 2010 CARD Act. In general, credit card applications for younger consumers are more likely to get  declined, due to lower incomes, lack of credit history, and lower credit scores.

    In contrast, Many BNPL providers only base approval on income, not credit history. Some even offer instant approval.

    Another reason why BNPL is a compelling alternative to credit cards? No or low interest fees. That’s a big difference from the double-digit interest rates of credit cards.

    BNPL options are quickly gaining traction as interest in credit card payments decreases. In a 2021 Ascent survey of American consumers, a startling 67% of BNPL users think BNPL could replace their credit cards, though only roughly a third are interested in that. In fact, 48% of those who use BNPL options use them more often than they use credit cards.

    Not surprisingly, younger generations are more likely to use BNPL over their credit cards. As reported in the Ascent survey, 54% of those aged 18 to 24 use BNPL more often than their credit cards, and 53% of those aged 25 to 34 do. Only 40% of those surveyed over 54 years old use BNPL services more often than their credit cards.

    1. Captures High-volume Everyday Purchases

    BNPL is known for facilitating big purchases like luxury items and furniture.

    Yet the majority (65%) of BNPL users have used it to finance products or experiences costing $500 or less, according to a Credit Karma survey. And of those, 32% have used BNFL for purchases of $100 or less.

    A 2021 TRC Market Research survey captured an interesting fact: a majority of global ecommerce shoppers decided how they’re going to pay for a purchase before they check out, and BNPL payment options offered early can help motivate them to buy.

    These findings speak to how BNPL can increase the volume of sales:

    • Higher conversion rate. Shoppers paying with BNPL were up to three times more likely to complete a purchase after browsing, according to the TRC survey.
    • Larger average cart size. BNPL increases the average cart size between 30% and 50%, according to RBC Capital Markets, as reported on com.
    • Less abandoned transactions. Shoppers have now come to expect BNPL options. According to the TRC survey, at least 50% of BNPL users in each country surveyed (including 66% in the United States) said they would abandon a purchase if BNPL wasn’t an option.

    Tap Into a Growing Market with Engaged Customers

    BNPL is growing fast, so your business can, too. Businesses like furniture and electronics retailers have long attracted customers using installment payment plans for major purchases. Today, paying for purchases with tailored, flexible BNPL plans – for even small ticket items – is one of the fastest-growing payment trends in 2022.

    Understanding the reasons why BNPL attracts younger consumers can help merchants create a positive payment experience that keeps them coming back, and drive top-line growth.

    Learn more about BNPL:

    Why millennials love BNPL

    What BNPL is and how it works

    5 key benefits of BNPL for merchants


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