During the pandemic, online purchasing increased along with the popularity of a brand-new phenomena. Because more stores are embracing the purchase now, pay later model, customers now have new shopping options (BNPL). BNPL plans are primarily targeted at consumers who make impulsive purchases of little things like fashionable clothing. The majority of BNPL users are Gen Z and Millennial consumers who either don’t have credit cards or elect not to use them. This choice is also a wise one for customers who don’t have enough money for the entire transaction but will over the course of the next several paychecks.

Buy Now, Pay Later: What Is It?

With a buy now, pay later instalment loan, clients can make a purchase, receive it right now, and then pay for it later. It enables customers to break up their purchases into several equal instalments, frequently interest-free, which can make even the most expensive purchases seem manageable and the smallest purchases appear to be insignificant. In contrast to layaways, BNPL arrangements allow clients to receive their purchases right away.

Currently, only 2% of all payments made globally are made using the buy now, pay later method. Bloomberg Intelligence projects that global sales volumes utilising BNPL will treble and may reach $181 billion by 2022. According to Gartner, the popularity of “buy now, pay later” has exploded, with key vendors Klarna, Affirm, and Afterpay showing volume growth rates of 46%, 83%, and 104%, respectively, year over year.

Buy Now, Pay Later: How Does It Work?

The historical forerunner of the current BNPL craze is the “instalment plan.” From 1840 onward, this method of paying off items on a weekly or monthly basis developed as furniture, piano, and agricultural equipment manufacturers sought to make their wares more affordable. Nowadays, shoppers who shop online at merchants like Target, Walmart, and Amazon are more likely to encounter buy now, pay later options.

When using buy now, pay later, customers specify a series of payments, which they subsequently make according to a schedule. BNPL plans typically include no interest or fees as long as the payments are paid on schedule. Although interest may be charged by providers on occasion, doing so usually allows clients to spread out their payments over a bigger sum of money.

Many buy now, pay later companies are releasing apps as well as browser extensions, enabling clients to use BNPL plans for in-person purchases. The vibrant apps are attractively straightforward and often just include light (or “soft”) credit checks. Have the choice to pay a portion of their whole purchase immediately, rather than the entire balance, at the time of check out.

Businesses that support buy now, pay later

Buy now, pay later has also gained a lot of traction among retailers because these point-of-sale loans are simple for them to handle. Retailers including JD Sports, Old Navy, PrettyLittleThing, ASOS, and PrettyLittleThing are collaborating with some of the biggest BNPL solutions. Offering BNPL typically results in larger baskets and more devoted customers. A study found that compared to using a credit card, more than 49% of respondents spend more when using the buy now, pay later option.

Additional advantages that businesses receive from BNPL include:

Higher conversion: With buy now, pay later, retailers may turn the desires of their clients into sales. Websites who provide these plans were able to turn a browser into a customer 6% more frequently than those who don’t 4% of the time.
Rise in the average order value: When it comes to budgeting and shopping, clients have options and convenience thanks to instalment payments. Additionally, it boosts consumer and merchant trust, which results in more sales, larger average order sizes, and more frequent purchases.
new clients: Another advantage of giving BNPL is that it can draw in customers that a merchant might not have been able to influence otherwise. If they can make the payment in full, customers who would not have bought an item due to its high cost might change their minds.

Plans for “Buy Now, Pay Later” are bolstered by loyalty programmes.

Businesses that offer “buy now, pay later” have begun to complement their offerings with reward schemes. They essentially have two choices when such suppliers decide to create a rewards scheme.

Giving clients points for utilising their service to shop is one way to promote BNPL purchases. To do this, BNPL providers can provide members with incredible benefits like unique online and offline discounts or shopping excursions from renowned brands like Nike, Samsung, Starbucks, or Macy’s. If customers are already enrolled in the retailer’s loyalty programme, they may even be eligible for additional benefits. These programmes typically modernise the shopping experience by providing ease, inspiration, and even a sense of community.

Rewarding prudent spending and eligible on-time payments is the alternative. Members are only eligible for points until their payments are finished and made according to schedule, which is done to promote this behaviour. One company that accomplishes this is Afterpay with their rewards programme, Pulse Rewards. There are three levels in the loyalty programme: Gold, Platinum, and Mint. Each level has a different set of perks, such as welcome offers and the ability to forgo the upfront payment obligation. Customers can access higher tiers and special incentives the more points they earn.

The Verdict on “Buy Now, Pay Later”

The popularity of BNPL has been boosted by the quick changes in consumer behaviour and the ongoing expansion of online shopping. Customers don’t have to spend their entire paycheck or savings all at once thanks to buy now, pay later, which makes it simpler to break down the price. It is somewhat comparable to having a credit card without having to undergo rigorous credit checks.

Of course, this system also has a drawback. It can be unsettling that this easy borrowing with a click “gamifies” purchasing and gives the impression that spending isn’t actually happening. Additionally, it can cause buyers to use credit when they otherwise would have chosen not to buy something at all. Customers are encouraged to make larger purchases than they had planned because they may receive a short-term credit to buy almost anything, anywhere.

Implementing a loyalty programme that rewards timely payments from businesses that provide purchase now, pay later services is a great method to encourage smart purchasing. Financial institutions are also impacted by BNPL’s growing popularity. These businesses can ensure that customers continue to use credit cards by introducing a rewards programme to encourage continued usage of this more conventional payment option.

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