How to Capitalize on the Growth of Buy Now, Pay Later

BNPL opportunities on the horizon

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The increase in buy now, pay later (BNPL) services has been exponential since the beginning of the pandemic. Top BNPL apps have seen 46% year-over-year app install growth, and monthly active users climbed by 186%. Buy now, pay later services such as Klarna, Affirm and Afterpay offer financing plans that allow consumers to split a purchase into multiple payments.

Shoppers spanning broad age segments have increased their reliance on BNPL services, driven by tough financial times and the expedited shift to ecommerce. Retailers benefit from this trend as they connect consumers with interest-free plans, not only online, but increasingly in-store. As bigger players enter the space, mainstream adoption is imminent.

A wide range of consumers

BNPL usage is growing most quickly among Gen Z and millennials, but there has been adoption across a range of age groups. A whopping 40% of millennials and 57% of Gen Xers are already using these services. Most BNPL services target Gen Z and millennials, but according to The Motley Fool, 34- to 44-year-olds are the most likely to use BNPL services. Regardless of age, BNPL is appealing to credit-challenged and underbanked consumers, with 90% of Afterpay transactions made using debit cards and 39% of users reportedly taking advantage of the service to avoid credit card interest.

Some brands wait until a visitor hits the checkout page to communicate the BNPL offering. This is a missed opportunity to highlight a compelling benefit earlier in the shopping process and likely leads to losing out on sales. Brands should test BNPL messaging throughout the site, in paid search ad copy, paid social ads and in all campaigns retargeting cart abandoners.

Not limited to high-ticket items

While BNPL started out as a solution for purchasing big-ticket items, during the pandemic it has gained traction for smaller, everyday purchases. Electronics are the most popular category (44% of BNPL users), followed by clothing and fashion and household appliances and furniture. For Gen Z and millennials, the majority of consumer spend is on fashion, specifically budget-friendly women’s fashion and sportswear. In a time when 47 million Americans plan to miss a credit card payment, the desire to avoid credit card usage altogether might be contributing to the usage of BNPL for lower-priced items. That being said, a study found that 42% of Gen Z and 69% of millennial shoppers are more likely to make a purchase given the option to check out using a BNPL service. The simple act of breaking down the payment into pieces can increase the propensity to spend.

As financial challenges persist, brands should prioritize offering payment options, particularly installment plans. For brands already offering these services, leverage data to understand what products are most purchased using BNPL, and merchandise and market those products accordingly.

The future of BNPL

Growth is expected to continue despite consumer concerns and potential regulations. Global BNPL volume is forecasted to increase to more than $680 billion in transaction value by 2025, up from $285 billion in 2018. Expansions into brick and mortar and availability on Amazon should further the momentum. In 2021, Klarna plans to build out in-store capabilities in the U.S. and Europe through a partnership with Verifone. Amazon has introduced BNPL financing in Australia, India and Japan, and is testing in the U.S., where 39% of ecommerce sales are through Amazon. Availability on Amazon would likely establish BNPL as a credible payment option across all age segments.

Additionally, BNPL platforms are developing loyalty programs and optimizing their sites for product discovery, setting themselves up to offer a personalized, seamless shopping experience and to compete with traditional credit card rewards programs. Savvy retailers should keep an eye out for these opportunities that arise from site enhancements and brick-and-mortar partnerships.