Excitement for buy now, pay later options grows as younger consumers seek flexible, no-interest payment options

Jan 25 2022 | PayPal Editorial Staff

Report: Enterprise retailers that understand how and why younger consumers use credit are hard-pressed to find reasons against offering buy now, pay later.

The idea that younger consumers fear credit is outdated and inaccurate. According to new research PayPal has commissioned with Forrester Consulting, younger consumers not only use credit, but they grow more comfortable with credit as they age — especially where no-interest options are offered.  Offering buy now, pay later (BNPL) financing solutions – which allow consumers to break up payments into smaller installments paid over time – can help retailers better serve younger consumers, help produce higher sales volumes, and may lead to increased revenue by adding the payment flexibility these consumers want.
Younger consumers’ credit usage driven by life-stage
The new research also found that merchants miss out by assuming that younger generations (people between the ages of 18 and 39) are credit-shy. Instead, survey results show that younger consumers use credit, and they warm to credit as they become more financially independent. Forty-eight percent of Gen Z, 60% of younger Millennials, and 69% of older Millennials said they are comfortable/extremely comfortable using credit.
Not only are younger consumers using credit, but they also use it frequently. More than half of all younger consumers — 85% of older Millennials, 75% of younger Millennials, and 67% of Gen Z respondents — report using credit in the last week. While debit cards are a more likely payment option for Gen Z, 4 out of 10 expect that their credit usage will increase in the next year.
The bottom line is that credit usage has less to do with generational characteristics and more to do with where younger consumers are at in their lives. Additionally, younger consumers are looking for compelling benefits when they use credit and are drawn to options that offer rewards and good interest rates: 72% of younger consumers said they are more likely to open a credit account if it offers little to no interest on certain purchases.  Younger consumers especially love BNPL options for big-ticket items, with roughly 7 out of 10 noting they are likely to use a BNPL solution to buy furniture or an item that costs more than $1,000.
Enterprise retailers misjudge consumer payment preferences — and risk losing buyers 
Retailers underestimate the influence of no-interest payment options: the ability to pay no interest for a period of time is the top reason younger consumers say they use BNPL solutions, according to the study. This defies the belief that the main reason younger consumers use BNPL is to pay in installments.
The lack of understanding around consumers’ credit preferences, coupled with the misconception that consumers do not understand how BNPL works, keeps many B2C retailers from promoting simple financing solutions. Younger consumers do understand how financing works per Forrester’s findings, pointing to a need for more BNPL payment options. 
Buy now, pay later can position merchants for long-term benefits
Forrester found that consumers between the ages 18 and 39 are smart about finances and are considering how credit can best serve them. Not only do BNPL solutions produce higher sales volumes, but companies with a BNPL solution report it produces on average 21% of sales.  
Large retailers should take note, especially as more than half (56%) of respondents from companies that don’t currently have a BNPL solution said their organization plans to invest in one in the next year.  
How PayPal works with retailers to reach next-gen consumers
PayPal works with enterprise retailers to achieve these objectives while better serving younger consumers. PayPal’s Pay in 4*, part of our global pay later offerings, provides the flexible financing options retailers need to accommodate shifting consumer preferences and boost the bottom line. 
PayPal Checkout converts 82 percent higher on average than a checkout without PayPal, and PayPal’s global pay later solutions have driven a greater than 2x average order volume (AOV), when compared to PayPal’s standard AOV. (Please note that product offerings and structure vary by region.) Merchants see a 12% increase in weekly total payment volume (TPV) post-adoption of PayPal’s buy now, pay later messaging, and 40% of U.S. customers return to complete 2+ transactions with Pay Later. 
Pay in 4 is available at millions of online merchants where PayPal is offered and brings the consistency, security, and reliability of the PayPal mark to give consumers peace of mind.
For more information about the Forrester Consulting thought leadership paper commissioned by PayPal, download the report or reach out to our team. 
Data from this article is sourced from the following report: How Younger Audiences Value Credit Offerings Today, commissioned studies conducted by Forrester Consulting on behalf of PayPal involving 504 US consumers aged 18-39 and 473 B2C merchant respondents with influence over ecommerce and/or credit decisions, November 2020.

*About Pay in 4: Loans to California residents are made or arranged pursuant to a California Financing Law License. PayPal, Inc. is a Georgia Installment Lender Licensee, NMLS #910457. Rhode Island Small Loan Lender Licensee.

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