Buy now, pay later bringing back the golden age of consumers’ spendings

22 Sep, 2020 . 4 minutes

As shoppers are coping with the pandemic economy, retailers are picking up with Buy Now Pay Later to attract a prospective comeback in consumer spending. Buy Now Pay Later enables purchases without being fully paid. In times of economic hardship, getting the goods first and paying for them later is a valuable appeal for cash-strapped shoppers to check out. One of the top Buy Now Pay Later providers, Afterpay, claimed to Shopify that the pay-later service helps retailers improve purchasing frequency, loss rates and customers’ shopping lifetime. Popular Buy Now Pay Later platform Klarna added that brands with installment financing found an increase of 58% in average order value and 30% in conversion rates.

Another leading Buy Now Pay Later player Affirm projected an increase of 20% in conversion rates and 87% in average order value for retailers that offer its service. With growing basket sizes and checkout frequencies, Buy Now Pay Later is one of the most popular solutions for merchants to curb cart abandonment. Customer experience app Barilliance found that the average mobile cart abandonment rate is more than 86% in 2020. Forbes reported that, at the height of lockdowns, personal incomes in the U.S. fell 4.2% and disposable personal incomes were down 4.9%. With less income, people are changing their spending habits and looking for a safer approach to their budgets. Compared with the 24.4% average interest rate on credit cards, according to the latest rate report data by, Buy Now Pay Later’s interest-free offerings are a better option. The sign-up process is considerably faster. Most services perform soft credit checks with flexibility to choose the split amount due into biweekly or monthly instalment payments. But besides the ease, Buy Now Pay Later’s business model is centered on consumer’s protection. “Clearly, the entire business model is built around getting customers paying on time and making sure the right customers are using our product,” said Afterpay’s global head transformation Christine Blythe to Australia’s leading business media INTHEBLACK.

Through Buy Now Pay Later services, e-commerce can offer shoppers who require a lower credit limit with alternative payment methods that can still be broken down into interest-free installments. Not surprisingly, Buy Now Pay Later service providers are already meeting both merchants and shoppers' needs. The service grows exponentially within the adverse turnabout of customers’ spending, gaining new revenue streams from the market. The world’s largest finance platform Divido reported that Buy Now Pay Later prospects are estimated to be worth $361 billion.

Splitit set record 176% quarter-on-quarter and 260% year-on-year growth during the second quarter of 2020, according to the fashion trading journal WWD. Meanwhile, the latest investor report states that Afterpay achieved a record growth of U.S. active users with 219% from 1.9 million in June last year to 5.6 million in the same month this year.

Buy Now Pay Later services give merchants repeat customers. In the past six months, 65% of Buy Now Pay Later users have made at least two purchases according to the Afterpay report. Adding the right payment options make merchants stay relevant in the marketplace and increase revenue. However, there are rules set by Buy Now Pay Later providers prior usage. Failure to comply, or overdue payments, will lead to fines and higher interest. For missed or late payment, Klarna will add $7 in the next scheduled payment while Afterpay charges late fees up to 25% of the order value. Depending on the plan, default on payment agreement can bring down a customer's credit score, said Lauren Anastasio, a certified financial planner from financial company SoFi.

 Lauren said Buy Now Pay Later could be the best solution for high-cost purchase as long as customers fully understand the terms from each payment plan. It is crucial for not letting customers become overcommitted – which Buy Now Pay Later providers should avoid. Keeping Up The Pace As many payment providers do, innovation has always been one of the top priorities for Buy Now Pay Later players, especially when it comes to gaining more market acceptance worldwide.

A report on the Buy Now Pay Later industry released by showed that age groups interested in Buy Now Pay Later services were dominated by shoppers between the ages of 22 and 44 with a share of 87%. Afterpay reveals that 75% of its customers are aged 17 to 37. One possible reason for this is the less frequent use and ownership of credit cards among younger shoppers. reported that 14.41% of Buy Now Pay Later users are not eligible for a credit card. Popular Buy Now Pay Laters also offer more uniqueness and flexibility in payment plans. Afterpay, for instance, offers biweekly repayments without interest over six to eight weeks. Zip Pay gives access to interest-free loan payment plans with no fixed term. Certegy, on the other hand, proposes perpetual credit contracts with terms of two to 60 months. The application and payment plan, however, tend to beg legal inquiries. Many Buy Now Pay Later companies are not classified as credit providers despite they offer similar credit services. Given its unregulated nature, regulators with emerging Buy Now Pay Later markets like in the U.S. and Australia are keeping a close eye to establish appropriate regulatory framework and code of practice. Such scrutiny and diverse market behavior from many domains encourage Buy Now Pay Later businesses to ensure their services stay on the right track.

Australia’s second largest Buy Now Pay Later player Zip Co is no exception. To expand its brands on a worldwide scale, Zip Pay is brought to the table different solutions in different territories. Recently, Zip Co has forged a partnership with one-stop payment platform epay to include Zip at all epay point of sale terminals, apps and e-commerce platforms. The joint effort will integrate customers’ access to interest-free payment plan with broader in-store and online retailers. “We’re very much of the opinion that unless you continue to innovate, and unless you continue to deliver real value, customers will jump to new players in the market,” Zip Pay’s chief strategy officer Tommy Mermelshtayn says.

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