Before deciding to offer the increasingly popular buy-now-pay-later (BNPL) payment method to their customers, merchants should understand both their market and the characteristics of potential users.
BNPL is unquestionably one of the most in-demand payment methods at the moment. It attracts shoppers with flexible instalment options, often at zero or low interest rates, which makes this method more attractive than high-interest credit cards. One in every three British shoppers opted for BNPL last year, with 36 percent specifically using it as a payment method during the pandemic-induced economic uncertainty.
On the other hand, retailers must keep up with customers' changing demands and preferences. They have to join the BNPL trend as research conducted last year showed more than 9.5 million UK shoppers avoid buying items from merchants that do not offer this payment method. These studies also project steady 12.4 percent growth in the use of BNPL between 2021 and 2028. But it is no easy feat to shift from traditional payment methods to more modern alternatives. One important step is to observe and note the characteristics of BNPL users, whether they are part of the merchant's target market or can be considered for expansion.
Millennials, not Gen Z commonly use BNPL
The media commonly portrays BNPL as most attractive to younger people, such as Millennials and Gen Z, and while this is true to some extent, it may not be entirely accurate. A survey conducted by Which? among 15,000 BNPL users in the UK earlier this year showed that about 64 percent of them were either Gen-X aged 40 to 54 years or Millennials aged 25 to 39 years. In contrast, only 10 percent were Gen-Z, aged 18 to 24 years.
Advertisements and social media buzz are among the main reasons the younger cohort is perceived to be the main target of BNPL. Companies specialising in this payment method, such as Klarna, Clearpay and Laybuy, are actively promoting their brands on social media. In addition, they also collaborate with trending British influencers and shows that appeal to younger people.
BNPL users are adults with financial responsibilities
Aside from generational perceptions, most BNPL users are parents in median households with various financial responsibilities.
According to the report by Which?, most BNPL users have annual incomes of between £10,000 and £50,0000. But many of them must use great circumspection before taking on additional financial responsibilities. Among the 15,000 adults surveyed, 71 percent have dependent children and 35 percent have experienced at least one major life event or missed a credit or household bill payment. So-called life events include serious accidents, marriage, divorce, or relocations.
It shows that most adults seek refuge in BNPL as a solution to better manage their finances. This conclusion can also be drawn from another survey by YouGov showing that nearly three in every 10 shoppers use BNPL to spread payments and maximise their budgets, while a fifth indicated that they lack the money to pay for purchases upfront. With that said, 40 percent of shoppers would use BNPL to complete a transaction amounting to more than £250. BNPL's main appeal is that it allows customers to spend wisely and effectively. With the expectation that this payment method will continue to see steady growth in the years to come, it appears likely that the statistics will slowly change to include more people in the younger generations as they start to deal with the financial realities associated with adulthood.
This means BNPL may become one of the most-used payment methods in the long term rather than a mere trend. It is therefore advisable for retailers to explore the use of BNPL if they wish to compete and continue growing.