The Power of Pay Later Report: The Impact of Buy Now, Pay Later for Retailers and Brands

Learn how growth in online shopping and shifts in consumer behavior have created a demand for buy now, pay later, creating an opportunity for fashion retailers to meet shopper expectations, drive sales growth, and enhance customer loyalty.

While buy now, pay later (BNPL) options have been around for some time, a confluence of factors accelerated its popularity in 2020. From the double-digit growth of online shopping and preference for cashless (and touch-free) transactions to a desire for greater payments flexibility and convenience, BNPL is poised to see continued growth this year and beyond.

This is good news for brands, retailers and consumers who value a friction-free shopping experience. The growth of BNPL is an immense opportunity to win new customers and grow the base of loyal shoppers.

Learn how the recent holiday shopping season shaped demand for BNPL, and why it attracts consumers – especially Millennials and Gen Z.

Consumers have gone cashless

Greg Lisiewski, vice president of Global Pay Later Products at PayPal, told WWD that consumers have gone through a transformation due to the global pandemic. “The need for touch free payments is more important than ever before as consumers and merchants move away from handling cash or touching keypads due to health concerns. PayPal has been helping merchants and consumers adapt and has mobilized around a few key product areas, including buy now, pay later.”

In regard to cashless transactions, global volumes had been trending upwards even prior to the outbreak of the pandemic. According to a report from Capgemini, the global volume of non-cash transactions increased 14.1 percent to 708.5 billion from 2018 to 2019. The report noted that a consumer propensity for digital payments “will make non-cash transactions reach a record volume of 1.1 trillion by 2023.”

Researchers at Capgemini also revealed consumer trends specifically born out of the pandemic. In regard to the share of respondents who had tried a new payment method in 2020, 41 percent had tried a contactless card. And 35 percent who owned a card had added it to a digital wallet while 27 percent tried out QR code payments.

“More than half the respondents (53 percent) said that they increased digital channel usage post-COVID,” Capgemini said in the report. “Notably, 41 percent of respondents aged 56 years or older said that they increased their use of digital channels post-pandemic.”

The allure of pay later

Consumer surveys show that Millennials have a penchant for using multiple payment methods. According to a recent PYMNTS study, Millennials are both more likely than other generations to have credit cards and have unique priorities when it comes to purchasing online, specifically flexibility and budgetary control. This is why various pay later online financing options are gaining traction with this demographic.

Further, research from Boston Consulting Group shows that Millennials, especially young Millennials, have been some of the hardest hit by the economic environment across the globe, making the need for flexible financial options has also become more of a demand.

The second mindset driving both Millennials and Gen Z consumers towards BNPL options is a sense of control over finances. This is a generation that is used to paying monthly or weekly for all sorts of payments, even fitness and media. If you are thinking about budgeting, it is really easy for consumers to break things down into monthly costs.

So-called “bridge Millennial consumers,” (a subset of older Millennials who are aged 32 to 41), tend to be more established in their careers and embarking on major financial responsibilities, such as having children and purchasing a home. Research from a PYMNTS report has shown that these consumers have financial resources but are looking for a responsible way to finance purchases without incurring fees and debt.

Notably, these younger consumers who are key users of BNPL are also largely driven by sustainability, buying less things of better quality. Offering young consumers the ability to receive the item while paying in installments is one way retailers can help. These financial offerings are fully integrated into the shopping experience, without consumers needing to leave the site to go apply for a credit card.

Making it work

In regard to marketing pay later options to Millennials, Lisiewski said it is important to create a seamless checkout experience “that takes friction from the transaction out of the equation, something that companies like Uber have mastered. If you can minimize the transactional part of the experience, you can improve the overall buying experience,”

It is also important to offer Millennials the financial flexibility and responsibility they desire while giving them repayment options (credit, debit, ACH) to fit their individual preferences. Retailers and brands also need to consider offering in-store and online financing options that give customers a more personalized experience. Consumers can secure flexible financing options from their fingertips that fit their needs.

There’s just one problem...

While it is clear that the power of pay later has a lot of momentum in the market, there’s a downside from the perspective of consumers, retailers and brands: there’s too many providers. Aside from PayPal, BNPL options are offered by a host of startups and newly-public companies. But who should retailers and brands work with? And who should consumers choose to use? This is where the provider’s brand trustworthiness and suitability come into play.

And there’s a solution...

For its part in the pay later market, PayPal has a network composed of more than 375 million global, active merchant and consumer accounts. PayPal’s Pay Later Solutions help merchants drive conversion, revenue and customer loyalty without taking on additional risk or paying any additional fees, while enabling consumers to make a purchase and repay over installments with no fees or interest.

Research found that the availability of a pay later option has a positive impact on online shopping, boosting consumer confidence:

  • 28% were more likely to shop at a merchant again if they offer a buy now, pay later option
  • 32% said BNPL allowed them to “make purchases they would otherwise postpone”
  • 81% decide upon which payment method to use before they even get to the checkout

PayPal brings predictability, scale, trust, and ubiquity to an otherwise unpredictable and fragmented marketplace with 15-plus years in the online financing space. The company’s Pay Later solution works with their existing PayPal integration while leveraging all of the investment the merchant has already made in integrating PayPal as a payment type, from settlement to money movement to exception processing — and all at no additional cost.

From the perspective of a merchant, the combination of an integrated, trusted brand that provides flexibility for consumers creates a positive and satisfying shopping experience.

Conclusion

Consumers’ ability to make payment in interest-free installments is appealing for a host of reasons and include greater flexibility and the ability to take a more budget-minded approach to finances and purchases. For brands and merchants, offering a pay later option is a simple way to improve the shopping experience.

The growth in buy now, pay later has also created challenges for both consumers and merchants: over the past few years, the number of pay later providers has increased, which creates confusion in the market. But merchants who work with well-established providers with whom they already have an integrated payments platform can make offering a pay later solution easier.

Download the report to learn more.

WWD REPORT PAYPAL (PDF)

WWD REPORT PAYPAL (PDF)

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