It’s happening right now. Right this second. Shoppers around the world are filling their online carts and choosing to pay for their purchases over time. No, they’re not using a credit card — it’s buy now, pay later (BNPL), and it’s here to stay. With instant gratification for customers and new revenue streams for merchants, all signs point to BNPL as a growing force in retail.
While the concept of BNPL is not new, this modernized financing payment solution couldn’t be more relevant for merchants right now. Insider Intelligence forecasts that 45.1 million U.S. consumers ages 14 and older will use a BNPL platform in 2021, up 81.2% over last year. According to a report by Kaleido Intelligence, retailers will ring up $680 billion in BNPL transactions in 2025, a 92% increase over the $353 billion transactions recorded in 2019.
The BNPL Imperative
Given BNPL’s sharp growth trajectory, it’s clear that merchants whose menu of payment options does not include BNPL will be at a disadvantage. Customers clearly crave a seamless, flexible payment experience, and many decide which retailers to patronize — and whether they should complete or delay purchases — based on the availability of flexible financing options. BNPL allows merchants to deliver the shopping experience their customers want, in turn gaining an edge over their competition in sales, customer loyalty, and increased conversion rates.
Statistics underscore BNPL’s power on these fronts. For example, a study of 1,000 U.S. online shoppers ages 18 to 39 — commissioned by PayPal and conducted by Netfluential in November 2020 — found that 28% of consumers were more prone to repeat shopping with merchants that offered a BNPL option. Nearly one-third (32%) made purchases they would otherwise have postponed because BNPL was available to them, and 24% said they were able to shop for more expensive items based on the availability of BNPL financing.
Additionally, BNPL can boost shopping basket size. Of consumers surveyed by Coupon Follow, 72.6% said that in their “most recent encounter” with BNPL, they had added items to their cart or bought something that cost more because the BNPL option was available to them.
Opportunity with Younger-generation Shoppers
Increasingly, the ground is becoming fertile for installment-based financing when it comes to targeting active Millennial and Gen Z consumers. While once assumed to be reluctant to use credit, these consumers appear primed to buy into BNPL and are highly inclined to patronize retailers that have incorporated it into their menu of payment methods.
According to a study commissioned by PayPal and conducted by Forrester Research in November 2020, 48% of Gen Z consumers (ages 18 to 22), 60% of younger Millennials (ages 23 to 29), and 69% of older Millennials (ages 30 to 39) are “comfortable” or “extremely comfortable” paying for purchases with credit.
Younger consumers, in particular, “are gravitating to pay later services now more than ever,” said Doug Bland, Senior Vice President and General Manager, Global Credit, PayPal. “The idea of younger consumers being credit-shy is just not the reality of these generations. Merchants are underestimating the power of BNPL services to reach Millennial and Gen Z consumers, as well as older generations of consumers who are becoming more comfortable shopping online coming out of the (COVID-19) pandemic.”
In fact, financial difficulties resulting from the pandemic have drawn more Gen Z and Millennial consumers into the BNPL fold, creating an even larger pool of customers for retailers to attract with installment-based financing. A BNPL market report by Coupon Follow indicates that 66% of Gen Z consumers and 56% of millennials utilized BNPL for the first time due to COVID-19.
Moving 4-ward and Capitalizing on BNPL Popularity
Pay in 4 is a BNPL option introduced by PayPal last year and part of its suite of global pay later solutions that also encompasses PayPal Credit in the U.S. and other financing programs in Australia, Canada, France, Germany, the Netherlands, Spain, and the United Kingdom. PayPal Pay Later is 14x more trusted by Millennials to keep their financial information secure than other buy now, pay later providers, according to the Netfluential study. Pay in 4 enables customers to pay for purchases of $30 to $1,500 in four biweekly payments over a six-week period. Merchants and partners are paid up front.
Pay in 4 offers a number of attractive features that may help drive adoption. For example, there is no additional fee to implement the solution and enable Pay in 4 for customers. The cost of adding Pay in 4 is already included in the rate retailers pay to leverage the PayPal platform. Consumers incur no origination fees when using this interest-free solution, helping to drive adoption of the BNPL option.
Additionally, Pay in 4 is configured so that retailers can easily promote it with dynamic, relevant, in-context messaging at every point in the shopping journey, starting on their homepage and extending to product pages and checkout. Generating such messaging requires a single integration step that can be completed quickly. Because Pay in 4 is part of the PayPal platform, retailers that offer it also have a single, unified “portal” for handling their payment needs.
Bland said PayPal will continue to undertake initiatives aimed at ensuring that it remains a category leader and retailers’ premier choice of BNPL partner. To learn more about Pay in 4, click here.