How BNPL shapes consumer behavior

Splitit - Buy Now, Pay Later - April 2022 - Learn how a mature buy now, pay later market gives top earners more flexibility

The buy now, pay later (BNPL) market is to skyrocket, fueled by both growing consumer awareness and an aversion to high interest rates, especially among younger generations. A recent study by PYMNTS found that consumer enthusiasm for BNPL continues to grow regardless of channel. Shoppers in physical and online environments show similar interest in BNPL, and the main factor that seems to inhibit the use of BNPL in physical retail is the lack of an BNPL option.

Of department store shoppers surveyed, for example, 46% said they are very interested in using BNPL online, while 41% are interested in using BNPL in-store. BNPL’s appeal is greatest among millennials, with 70% saying they are very interested in using installment plans at luxury and specialty retailers, with around two-thirds of millennials bridge and Gen Z consumers saying the same thing.Splitit - Buy Now, Pay Later - April 2022 - Learn how a mature buy now, pay later market gives top earners more flexibility

However, interest in BNPL is not limited to young people or those worried about debt. As its popularity grows, BNPL offers more and more opportunities to give even carefree consumers a wider range of options to manage their finances. This month, PYMNTS examines how BNPL influences consumer behavior across a wide range of demographics.

Eliminate friction at checkout

Consumers to give up up to 75% of online shopping carts, and reducing this rate offers retailers a significant opportunity to improve their sales and revenue. Many factors can impact cart abandonment, from difficult website navigation to a slow shopping process, but 6% of consumers abandon carts due to a lack of payment options. while 18% drop out due to price. Adding BNPL to retailers’ payment options can address both of these concerns and may even encourage shoppers to make additional purchases.

BNPL is gaining traction with general consumers as an easy, low-friction payment option. A recent PYMNTS survey found that 42% of consumers were interested in BNPL because of its ability to spread payments over time, but 33% said they were attracted to its ease of use and convenience. BNPL too reduced the friction associated with increasing the amount of a customer’s final purchase. Nevertheless, the BNPL possesses frictions that are unique to him to face. As BNPL becomes more popular, it also becomes a bigger target for bad actors, and BNPL providers face the same need as other payment providers to balance convenience and security.

BNPL as an alternative to credit for worry-free buyers

As the number of vendors offering BNPL has increased, so has the variety of BNPL services and products available. Common features of the BNPL include four or more interest-free installments, but providers create many variations on this theme, with some offering up to 30 installments.

Splitit - Buy Now, Pay Later - April 2022 - Learn how a mature buy now, pay later market gives top earners more flexibility

Other approaches allow customers to use existing limits on credit cards to secure BNPL loans. Under such an option, the provider places a hold on the customer’s credit card for the full amount and then reduces that hold as each installment payment is made, usually with that same card. The holdback proves that the consumer is able to repay the full amount, eliminating the need for a credit check. It also allows consumers to use credit limits without increasing their debt ratio or accumulating interest. If the installment payments are made from the same card, the consumer can even receive rewards.

Financially carefree consumers with good credit or access to credit therefore present a promising opportunity for BNPL products that can utilize that credit. Although these consumers have no difficulty finding other ways to pay for their purchases, they are interested in alternative credit products that help them budget. Forty percent of worry-free consumers surveyed who haven’t used a credit card in the past year said they were concerned about overspending, and 35% said they avoided credit cards due to high interest rates. Additionally, 43% of worry-free consumers said they would be interested in using BNPL for one-time, expensive retail purchases, and 24% would consider it for medical expenses.

As BNPL suppliers and retailers plan for the future, growing interest in BNPL will undoubtedly reveal new and different ways for buyers to use these products. Suppliers will want to pay particular attention to how different consumers may want to use BNPL and what value it can add to their shopping experiences.

Kayleen C. Rice