Since its introduction more than a decade ago, buy now pay later (BNPL) has grown into one of the best-performing markets. This phenomenal growth has seen BNPL changing the online shopping landscape by providing businesses and consumers with countless opportunities and payment options that are otherwise inaccessible via other methods.
BNPL was introduced in 2010 to meet the growing demand by consumers for a lower-cost alternative to credit cards as a payment method. This saw the birth of an ever-expanding market that has become one of the best-performing markets globally, especially since the start of the coronavirus pandemic.
BNPL's growth in recent years was largely associated with a younger demographic, offering cheap and much more accessible payment methods. In the United States, for example, consumers have slowly moved away from using credit cards, citing high-interest rates, declining credit limits, and even the degrading quality of rewards programs as reasons. This has been happening since the early days of the pandemic. Perhaps the biggest caveat of BNPL is that consumers could easily accumulate debt, as this payment method is not only intended for wider use, but consumers may often find themselves buying more than intended and end up struggling to pay off ballooning debt.
On the other hand, BNPL has helped businesses by ensuring higher checkout conversion rates online, with some providers claiming rates of between 20 percent and 30 percent. In addition to helping businesses clear their carts faster, more expensive items became more affordable as they can be paid off over several months.
In terms of online shopping, BNPL still features the same buying procedure, pick an item, add it to the cart, checkout, and pay. However, a game-changing feature is that it allows payment to be split into several easy installments. Moreover, with the growing number of providers and alternatives, consumers keen to use BNPL are now given greater flexibility regarding payment options. Some BNPL providers also offer an easy and less complex registration process for customers seeking to use their services. Meanwhile, most, if not all, offer lower interest rates than credit cards or other payment options.
This might explain why BNPL has seen tremendous growth in recent years, especially during the pandemic when people were forced to stay at home. More exposure to the internet eventually leads to a sudden spike in the adoption rate of BNPL. It was reported that Gen Z, or people aged 21 to 25 years, and Millennials, or those aged 26 to 40 years, accounted for the highest market percentage in terms of growth between 2019 and 2021, with the former recording 600 percent growth, while growth in the use of BNPL by the latter more than tripled. Meanwhile, notable growth rates were also recorded for Gen X (41-55) and Baby Boomers (56-75) between 2019 and 2021.
Effective and seamless online checkout experience with BNPL
From the perspective of consumers, the more payment alternatives that are available, the better and more likely they are to access products. With the addition of BNPL, other than credit/debit cards payment or PayPal, consumers now have additional options, such as Klarna, ClearPay, and Sezzle, among others. Online businesses might encounter cart abandonment issues, especially for premium-priced products. According to the Baymard Institute, price is cited as the reason for cart abandonment almost 70 percent of the time.
This is disheartening news for businesses as decreasing the prices of items is pretty much out of the question. However, BNPL can get around this by breaking down payments into several monthly payments. This means businesses can maintain their prices and products may become easier to sell, while consumers can now access a wider range of items, which would otherwise be inaccessible to them. Meanwhile, breaking down more expensive purchases over several monthly payments also has a certain appeal for consumers.
The main selling point for using BNPL is that most service providers charge zero interest. Along with flexible monthly payment options, BNPL has affected the spending behaviour of consumers by making the checkout and payment processing processes quicker and easier online – all thanks to the one-click buying feature. As the name suggests, this feature allows consumers to purchase with a single click without needing to submit their payment information again if they have made previous purchases, when all the required information would have been captured.
That being said, some consumers prefer this feature because it makes their lives easier and hassle-free. However, others admitted that it might easily lead to overspending as they are tempted to make purchases daily. This is a strong indication that BNPL can amp up consumers' spending power. Nonetheless, consumer protection remains an important aspect in all business dealings, be it online or offline.
Moreover, BNPL does not strip away the immediate fund transfer to businesses. Similar to other payment methods such as credit/debit cards and traditional payments, businesses may still enjoy immediate fund transfers with BNPL, especially with prominent providers such as Klarna, Affirm, or Sezzle.
BNPL is a much more convenient cashless payment method, allowing consumers to process payments instantly. As for defective goods or wrong-sized clothing items purchased through BNPL, consumers may resort to support staff to return or exchange such items. Some feature free returns, very similar to buying something at a brick-and-mortar store.
With all of these features combined, businesses may benefit, as products are now much more accessible to a wider range of consumers, and transactions are much easier, given that consumers can afford to repay their loans.