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Looking beyond the Buy Now, Pay Later hype

One of the fastest growing payment methods globally, “Buy Now, Pay Later” (BNPL) has gained momentum among both younger shoppers and older cohorts, with particularly strong growth in fashion retail.

BNPL is set to continue scaling rapidly - UK shoppers spent around £2.3 billion using BNPL services last Christmas and Klarna recently boosted its valuation by 50% to $45.6bn. So, it's time merchants assess its value to their business and establish how they can get the best out of the relatively new payment method. As offering consumers’ preferred payment methods means merchants can attract new customers, boost conversion rates and uplift lifetime value.

Behind BNPL’s growing popularity

BNPL offers a more flexible, less costly way to spread out a payment and enables consumers to purchase items they may otherwise not have been able to afford. The whole payments experience is digitised, with customers registering, undergoing an initial “soft credit check” from the BNPL provider, and obtaining approval in a matter of seconds. Customers can then usually set their payment schedules at checkout – supporting that all-important fast, seamless experience that digital natives expect.

BNPL services are growing at a rate of 39% a year, with its market share set to double by 2023. By then, 3% of global ecommerce spend will be through BNPL services. What’s more, 85% of consumers who have used BNPL services plan to continue doing so in the future. Although many BNPL providers are new to the market, some are already profitable, which illustrates the business model is probably here to stay.

At a regional level, BNPL is already very popular in Europe, North America, and Australia, where transaction value has grown by 292% between 2018 and 2020. By 2025 however, it is predicted that markets such as China and India will overtake western players from a transaction volume perspective. It’s usage in-store is also growing, and is set to see a 7% annual increase at the POS from 2020 to 2025.

The BNPL benefit to merchants

Unsurprisingly, offering customers’ preferred payment methods can lead to significant sales uplift. But with BNPL, there is an even stronger, more compelling reason for merchants to get involved.

Multiple surveys have proven that customers who use BNPL tend to spend more. A survey by AfterPay found that 42% of Gen Z and 69% of millennial shoppers are more likely to purchase items if a BNPL service is offered. While it could be argued this is biased coming from a BNPL provider, other recent research suggests the same thing. The PYMNTS BNPL tracker shows that nearly half (48%) of the consumers they surveyed wouldn’t buy from a merchant that didn’t offer BNPL payment options. Additional research conducted in the states also found that 45% of consumers use BNPL at least once a month - or more - and when shopping online, almost half (47%) use it “most of the time” or every time they shop for an item.

Is there a catch?

There is a concern that merchants will have to wait to receive their money given consumers don’t have to pay “in full” up front. But this couldn’t be further from the case. BNPL providers are set up to make sure merchants get their funds right away and the provider takes on the risk in securing the repayments from the customer.

The other benefit is that merchants aren’t liable for the fraud risk of BNPL payments. Liability for fraud, chargebacks, or even when a customer defaults on a repayment sits with the BNPL provider.

Naturally, there is a fee for the service, and merchants need to be clear on these fees when looking at which BNPL provider to work with. BNPL providers charge anywhere between 2 and 8% per transaction, which is typically higher than credit card fees.

There are positive - and potentially profitable - reasons for merchants to offer BNPL options to consumers. But it’s clear that having the flexibility to offer the BNPL brands - Afterpay, Klarna and Affirm among others - that are right for a merchant’s target market is extremely important. Not only to keep up with the competition, but to stay relevant with the shoppers of tomorrow, today and continue to drive forward revenue streams.


Comments: (4)

Melvin Haskins
Melvin Haskins - Haston International Limited - 18 June, 2021, 08:37Be the first to give this comment the thumbs up 0 likes

I have had a Buy Now Pay Later facility for the last 50 years. It is called a credit card.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 18 June, 2021, 14:50Be the first to give this comment the thumbs up 0 likes

As I highlighted in BNPL Ain't Killing Banks. It's Making Them Rich, BNPL has been around in UK for 100+ years and India for 50+ years. Historically, BNPL has been provided to Consumers buying big ticket goods by the Retailers from whom they buy them (with the retailers, in turn, probably financing those loans with big loans from banks). The new wave of BNPL really signals the outsourcing of BNPL by Retailers to third-party BNPL providers like Affirm, Klarna, PayPal et al - rather than a new payment method. Then and now, short term BNPL is fee-free and zero-interest and is really tantamount to free loan - unlike credit card.

Melvin Haskins
Melvin Haskins - Haston International Limited - 21 June, 2021, 00:10Be the first to give this comment the thumbs up 0 likes

I have always pay off my credit cards in full each month. As a result, I get a fee free and a zero interest loan for between 25 and 56 days. I also get a guarantee with anything that I purchase, which enables me to get a fee free refund if the goods are faulty, without having to wrangle with shop or the vendor.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 21 June, 2021, 09:37Be the first to give this comment the thumbs up 0 likes

#MeToo. I've been using credit card for 35+ years. During this period, I've never ever paid a single penny in fees or interest. But I'm still bullish about BNPL for a few reasons: (1) During most of those 35 years, I've been a supplier of technology to banks and credit card companies. Maybe because of that, I know that credit card offers fraud protection etc. However, even today, I reckon that the average credit cardholder is not aware of this benefit of credit card. IMO, banks have kept this feature under wraps. So much so that, a few years ago, American Express claimed this standard feature as a USP of its credit card in India. I'm guessing the average BNPL customer won't miss the lack of fraud protection in BNPL. (2) Many BNPLs give free credit for as long as 4 months. 56 days free credit offered by credit card is good but 120 days free credit offered by BNPL is better. 

Marc-Christian Maibach

Marc-Christian Maibach

Senior Product Manager

ACI Worldwide

Member since

16 Jun 2021



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