The importance of buy now, pay later

Today, shoppers have a variety of options for making a purchase. Where past generational shoppers heavily utilized options like store-offered lines of credit, and Layaway, nowadays, Buy Now, Pay Later (BNPL) options are on basically every single check-out service online. Even brick-and-mortar stores are introducing this payment method in stores. This form of short-term financing allows consumers to make purchases and pay for them later, often without incurring interest charges. Companies believe that this option is a great alternative to credit cards and it does not hinder those with bad or zero credit.

It seems like consumers who use buy now, pay later options really love them and leverage them. With all that being said, research is showing that shoppers might be using less of it. 

The Good: 

C and R Research found that 71% of consumers have been purchasing more items online than before the pandemic. They also found that 60% of consumers have used a buy, pay later service. Originally BNPL was targeted towards the younger generation with small incomes and less credit. Now, it is creeping into the middle class. Consumers now have the option to use this service that has a lower APR than most credit cards and is a great way to buy something you want that you can't afford at that moment. With a credit card, you have to pay month over month but with a BNPL, you can break up your payments into smaller, more manageable chunks. BNLP also makes the check-out process more streamlined which helps keep consumers in the buyer's journey.

Industry experts expect this number to double year over year during the 2022 holiday season. The growth of BNPL is mainly among 18-34-year-olds with 12% of the demographic who was surveyed by CNBC, said they are using buy now pay later for the holidays compared to 0% of 65-year-olds and older for the 2021 holiday season.

While BNPL empowers consumers in a variety of ways, it also offers several advantages to merchants, such as a wider audience reach and higher conversion rates. The system provides affordable, flexible payments for high-value purchases. This type of model also often results in a higher order value, and since third-party service providers typically pay retailers immediately when they buy now and pay later, retailers benefit from it. 

The Bad:

At first, companies such as Klarna, PayPal, Afterpay, and Affirm seemed to be a huge benefit to e-commerce businesses but now, they might not be as effective as everyone thought. In same study noted above, C and R Research found that despite consumers testing out and using buy now, pay later systems, 66% of consumers find buy now, pay later services to be "financially risky."  They also noted, "Among Buy Now, Pay Later users, 45% use the service frequently (at least once a month or more); and when shopping online almost half (47%) say they use it 'most of the time' or every time they shop for an item." During the holidays in 2021, consumers either didn't need BNPL or didn't want to use it, but only 7% of consumers planned to use the service for their holiday shopping. 

In spite of the push and growth for BNPL, there are some hesitations and concerns. Credit Karma did a recent study that highlighted that 34% of consumers using BNPL services couldn't pay one or more payments. According to the same study, 50% of Gen Zer's fall behind on payments. Depending on the service, late payments can result in late payments and even can put on a debt collection list. Credit Karma also reported that of those surveyed 72% of those who missed a payment said they thought their credit score dropped as a result. 33% said that their credit score declined significantly as a result of late payments. 

If you are an e-commerce business trying to decide if you should integrate with a BNPL, know that the benefits outweigh the negatives and will continue to grow in the e-commerce and retail space. Check with your marketplace or selling platform to see if this is an option for you. If your marketplace or selling platform does offer BNPL, then check out our list of integrations. If you are not sure if your current marketplace or selling platform doesn't offer BNPL then contact us and we will assist you.