Now is the Time to Offer a Buy Now, Pay Later Solution

Nov 16 2021 | PayPal Editor

Jim Marous of The Financial Brand examines how shopping and payments trends have evolved since the pandemic, and how merchants can adapt and gain more customers by offering buy now pay later solutions. 
The digitalization of the marketplace has continually accelerated, with consumers looking for simplicity of shopping, buying and paying for products and services. Consumers may abandon their carts during the buying process if there is friction and may potentially buy more if the checkout experience can be done with minimal effort.

The way people shop for products and services shifted during the pandemic, as consumers moved from physical stores to digital platforms. More consumers are not only doing a lot of their shopping online, enjoying digital features like assisted buying, but many are also changing the way they pay.

While cards are still king for many in-store transactions, various mobile options (BNPL, mobile wallet, embedded payments, etc.) are seeing a surge in usage for both in-person and e-commerce payments. The rapid acceptance of digital person-to-person (P2P) options and mobile wallets are a foreshadowing of changes we see across all platforms, as consumers seek faster and easier ways to move money, make purchases and engage with merchants.

This transformation of the shopping experience is a major wake-up call for merchants who are hoping to increase sales and build loyalty with customers who are presented with more shopping alternatives daily. As the holidays approach, merchants must understand the impact of one of the most recent phenomenon – the buy now, pay later (BNPL) marketplace. 

For a better understanding of the appeal and market for BNPL, including growth prospects, this overview provides guidance to the opportunities of this new payment option.

The Pandemic Changed Shopping Forever


As the majority of physical stores were closed, consumers, merchants and payment providers quickly adjusted to the way shopping could be done and payments could be made. The flight to digital alternatives was immediate – and the impact is everlasting. 

As part of the pandemic-fueled digital evolution, the fastest growing payment alternative provides the potential to defer payments at the point of purchase. As of March 2021, the buy now, pay later (BNPL) option had been used by 55.8% of consumers, up from 37.65% in July of 2020 -- an increase of almost 50% in less than one year, according to research from The Ascent.

Buy now, pay later usage growth between July 2020 and March 2021 was largest in the 18 to 24 age segment (62% growth) and the 55+ age group (98% growth). While older consumers, ages 54 and older, are the lowest users of BNPL, this user base is expected to continue to accelerate as BNPL providers expand the numbers and types of merchants they partner with to include retailers geared to older consumers.

Data Source: Buy Now, Pay Later Services Continue Explosive Growth. Surveys commissioned and conducted by The Ascent in July 2020 and March 2021, involving 2,000 U.S. consumers.

Of the respondents who had never used BNPL, 53% said they were at least somewhat likely to use it within the next year. In other words, this is a trend that can’t be ignored.

Where a debit or credit card may be used dozens of times during a year, for payments of all sizes, at any type of merchant, BNPL usage is far less frequent ...  even among fans of the payment option. According to research from The Ascent in July 2020, among those who use BNPL, 28% use the option once a year or less frequently, while 21% use it every six months. Another 21% use BNPL every three months, and 30% are more frequent users. 
 

Data Source: Buy Now, Pay Later Services Continue Explosive Growth. Surveys commissioned and conducted by The Ascent in July 2020 and March 2021, involving 2,000 U.S. consumers.

Many BNPL providers are looking for more ways to build engagement and increase frequency of use within their offerings, including loyalty programs and other direct to consumer incentives not tied to specific merchants. Also, as consumers become more familiar with the benefits of BNPL, and merchants continue to embed the option into the payment process the way PayPal and other providers offer, it is expected that frequency of use will increase. PayPal offers a simple integration for their merchants to quickly and easily provide BNPL solutions to their customers at no extra cost. 
 

BNPL Opportunity for Merchants


While buy now, pay later offerings still represent a relatively small component in the overall payment ecosystem, the payment option should not be ignored, especially because so many providers offer BNPL separately and integrated within existing payment options. With the buy now, pay later market expected to grow almost 400% by 2025, merchants relying only on plastic payments and outdated lending processes, such as store-based lending applications that are mostly paper-based, could potentially lose out to merchants offering BNPL as an embedded payment option.

One of the biggest draws of the BNPL service is the ease with which this digital option can be used. And, many BNPL providers are expanding how they reach consumers and offer the service. This includes the offering of pay later solutions within a much broader financial platform like PayPal just announced, where savings, payments, bill pay and shopping are offered within the same ‘super app’.

As digital payment options continue to expand, the BNPL offering can contribute to the purchase activity and customer loyalty with one of the more coveted segments — younger consumers. According to an online study commissioned by PayPal and conducted by Netfluential in November 2020, involving 1,000 US online shoppers ages 18-39, 28% of consumers between 18-39 are more likely to shop at a merchant again if they offer a BNPL option. 

Two major benefits the younger consumer appreciates are the ability to purchase an item today as opposed to postponing (32%) and the ability to purchase more expensive items (24%). A benefit mentioned by all age segments in research by The Ascent is the ability to avoid credit card interest rates (37%).

Finally, according to a commissioned study conducted by Forrester Consulting on behalf of PayPal in May 2020, involving 504 U.S. consumers ages 18-39, for merchants offering larger ticket items, roughly 7 out of 10 younger consumers said they are likely to use a BNPL solution for furniture or for an item that costs more than $1,000. Other popular product categories for BNPL purchases include electronics (48%), clothing and fashion items (41%), and household essentials (33%), according to The Ascent survey.
 

The Perfect Solution for the Busy Holiday Season


Holiday retail sales are likely to increase between 7% and 9% in 2021, according to Deloitte’s annual holiday retail forecast. The same report stated that e-commerce sales are projected to increase due to a steady growth in online purchases across all categories and will grow roughly by 11-15% year-over-year, during the 2021-2022 holiday. 

The merchants who will likely win during this upcoming holiday season will be those who respond to shifting consumer shopping behaviors, offering the most seamless options for online and in-store shopping, as well as order fulfillment and payment. 

The application for credit, or even the use of a credit card, may not be a preferable option for many consumers. Some want a low-cost option to pay for a purchase over time that is available at the point of sale. By offering a flexible payment option such as Pay in 4 with PayPal, consumers can opt to pay for their purchase over time, interest-free and without late fees. While consumers enjoy the flexibility, merchants receive the payment up front. 

The BNPL solution needs to be viewed as a digital alternative to reach a market not effectively served today. If the service is built as a digital offering to meet the needs of segments looking for a way to access an immediate and easy to use deferred payment option at the point of sale, a longer-term relationship with the consumer is possible.

Learn more about PayPal’s Pay Later solutions HERE
This article was written by Jim Marous in paid partnership with PayPal. 

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