(Source: Primary and Secondary Research, Coherent Market Insights, 2019-2020)

Before the COVID-19 pandemic, BNPL was focusing on the fashion and beauty segments, but the pandemic appeared to have played a part in the increasing use of BNPL services in the electronics segment – it changed customer behavior and encouraged BNPL companies to expand BNPL payments to consumer electronics and thus to expand their product portfolio.

BNPL companies have also started proposing their solutions in various services sectors like travel, medical and similar.

6. Benefits for the Customers

Customers like the concept of Buy Now Pay Later as it gives them the flexibility to manage their finances, regardless of income level. It is a convenient add-on to debit cards and traditional forms of credit, which allows for postponed payment, spend tracking, and budgeting support. Customers can postpone full payment or pay in parts and plan their finances accordingly. BNPL operates like a cash management tool for them and at no extra costs if used properly.

BNPL allows consumers to receive goods and services upfront without the need for a separate credit product.

The majority of BNPL companies propose deferred payment for the purchase without any interest or fees and this is one of the most important benefits for their customers.

BNPL offers a frictionless checkout: minimal information is requested to be provided by the customers and an instant real-time decision is provided if the purchase is approved. Once customers have used BNPL, their details are automatically stored, making purchases thereafter as convenient and seamless as possible.

Most BNPL solutions have put some safeguards in place to prevent overspending and to promote responsible purchasing. Unlike traditional credit cards, BNPL solutions try to avoid extensive debt accumulated by consumers who can’t afford their purchases. It may be driven with a more accurate scoring at the sign-up process but also through freezing accounts for customers who fail to make a payment on their current purchases, so they are unable to make further purchases preventing them from getting into a debt spiral. There are also spending limits in place for customers to ensure they are only spending within their reasonable means.

BNPL creates competition to the traditional lending products which might lead finance companies to consider decreasing their interest rates and thus resulting in end products becoming cheaper for customers.
 

7. Benefits for the Merchants

One of the biggest issues online retailers face is the dreaded shopping basket paralysis. In fact, a Smart Insights report found that global mobile conversion averages less than two percent for online shopping (ref). Such realities put pressure on BNPL providers to make the onboarding and payment process as simple and stress-free as possible, but they also present an opportunity. Below are some of the key benefits of using the BNPL payments for the merchants:

• Increase of the average order value. Buy Now Pay Later offers a tempting incentive for customers to pop another item into their basket. Shoppers that may have usually stretched shopping over several months are now purchasing multiple items in one order.

• Increase of the conversion rate. A recent study carried out by Internet Retailing has shown that 56% of shoppers would buy more online if there were more variation in payment options available. Alongside having that flexibility when it comes to payments, customers can also utilize “try before you buy”.

• Increase of repeated purchases. BNPL provides a positive purchase experience which is so important to customer retention - these positive experiences mean they will come back again and again. In addition, once they know a merchant offers a BNPL option, they will come back to the same merchant for their next big purchase instead of working to find another store.

• Increase of new customers. Customers who tried BNPL at the merchant shop and were satisfied, tend to speak with mates and share findings. A customer satisfied with exceptional services is the most efficient and cost-savvy tool for attracting new customers.

• Reduced costs. Most BNPL companies offer joined marketing campaigns with merchants or promote the merchant on their webpage, this allows the merchant to decrease marketing costs and attract more customers. Using BNPL allows to reduce returns – BNPL customers are less willing to return purchases.

• Zero financial risks. The BNPL provider is collecting the purchase amount from the customer within a couple of months and takes all the risk of that process while the merchant receives a full payment very fast.

BNPL is ultimately a win-win solution. For consumers - it gives more flexibility and more control of what and how they buy. For merchants, the BNPL attracts new Millennial and Gen Z customers, whereas the merchant gets more repeat visits, converts higher average basket sizes that allow the growth of the TPV (Total Processed Value) constantly with lower marketing costs and better returns.

8. Conclusion

The oldest Millennials are now almost 40 and Gen Z is just behind them, as some of their older members are coming into their full purchasing power. Both generations are known for their desire for flexibility and convenience, so it is no surprise they are wary of the promises of traditional credit solutions. Thus, enter the BNPL options to successfully disrupt the payments industry, moving customers away from major credit card companies and enabling customers to spread big purchase payments over time without the uncomfortable accrual of interest or related fees. Whether this trend will continue once the Millennials attain even stronger purchasing power remains to be seen, but at least for now, the BNPL payment options are benefiting both retailers and consumers.

​​