Buy Now, Pay Later (BNPL) options for major brands, including Target, Walmart, Amazon, Wayfair, and Best Buy, have experienced incredible growth over the last few years as consumer preferences for an alternative to credit cards have increased. But not nearly as much has been reported about the businesses that are moving to accept BNPL options, especially smaller merchants.
More than half of U.S. customers have used a buy now, pay later service. It was the fastest-growing payment method in 2020 in India, and U.K. analysts estimate that these services will account for 12% of total global e-commerce spend on physical goods by 2025.
For a recent report, PYMNTS and the BNPL company Sezzle surveyed 3,177 U.S. consumers about the payment option. They found that 40% of online shoppers would abandon their carts if the choice of BNPL were not available, and 4 in 10, or 43% of BNPL users, were likely to delay a purchase or opt for a cheaper product if BNPL options were unavailable.
Inflation may increase BNPL adoption
Preserving a cash cushion and avoiding interest are consumers' main motivations behind BNPL use — motivations popular during times of high inflation. BNPL allows consumers to pay for large-ticket items in installments with no additional interest charges. For 28 percent of consumers, the low- to no-interest rate is essential; for 11 percent, it is the most important reason to use BNPL. For millennials, the availability of BNPL can keep them from using high-interest loans.
The Demographics of BNPL Financing
One of the primary reasons why BNPL has thrived among younger consumers is the financial flexibility and convenience it offers. Traditional credit cards often come with high-interest rates and strict repayment terms, making them less appealing to individuals seeking budget-friendly payment options.
BNPL services, on the other hand, provide the flexibility to split purchases into smaller, interest-free installments. Another major factor contributing to the popularity of BNPL among younger consumers is the straightforward and swift approval process.
BNPL Gaining Ground in Retail Sales
BNPL is showing up in a wide range of retail establishments. Some 86% of retailers that sell sporting goods, for example, are seeing great demand for BNPL options.
In addition to sporting goods, more than two-thirds of retailers selling health and beauty products, musical instruments, or automobile parts (67% in all cases) report greater BNPL use. In comparison, 57% of those selling clothing and accessories also experienced an uptick.
The Benefits of Offering BNPL for Small Businesses
As small businesses look for ways to grow and attract new customers, offering BNPL loans has become increasingly popular. Businesses that accept buy now pay later services on Stripe have seen a 27% uplift in sales volume.
Get paid upfront and receive protection from risk and fraud
Merchants offering BNPL options receive the total payment upfront whether or not the customer completes their repayment or disputes the transaction. The BNPL provider assumes all risk and associated costs in the event of fraud.
Increased Sales
Offering BNPL loans can attract customers who may not be able to afford the total price of a product or service upfront, leading to increased sales and revenue for small businesses. PayPal noted that consumers spend 30% more on checkout when using BNPL. According to Stripe, more than 26% of millennials and almost 11% of Generation Z shoppers used the buy now, pay later services to pay for their most recent online purchases.
Inflation Mitigator
BNPL appeals to consumers during times of inflation. This trend is evident among those making luxury purchases. Afterpay, for example, has seen a doubling in the number of designer brands available on its app from 2021 to the first quarter of 2023. Consumers find it less intimidating to make four interest-free payments of $50 rather than one $200 transaction with a credit card with interest continually accruing.
Competitive Advantage
In a crowded marketplace, offering BNPL loans can give small businesses a significant advantage over competitors that don't provide this option.
Customer Loyalty
Customers who take advantage of BNPL loans may be more likely to return to the small business for future purchases as they have established a trusting relationship with the company.
BNPL has established traction with a broad cross-section of the U.S. consumer. This popularity gives merchants a clear sales-based incentive to provide BNPL as a payment option, to say nothing of the increased customer satisfaction. While this can be an attractive option for their customers, it's essential for small business owners to carefully choose the BNPL provider for their business and determine if adding BNPL as a payment option is suitable for their business model.
Since 2005, Quikstone Capital Solutions has been a trusted advisor to thousands of merchants needing working capital for their businesses. A merchant could qualify for up to $250,000 if they accept credit cards. It's a quick and easy process, with approval in 24 hours and cash available in 2-5 business days. Contact us today to schedule a no-cost or obligation qualification with one of our in-house business representatives.
