Payments analyst Lisa Ellis sees “buy now, pay later” (BNPL) financing as a niche, but it’s a big enough niche that it’s likely to become table stakes in the coming years. The idea of paying in installments is hardly new (witness QVC and HSN and just about anything peddled by Ron Popeil), but recent advances have transformed BNPL into a Silicon Valley fintech disruptor.
Yet many mass retailers and brands have balked at offering it because of financial and systemic hurdles. It’s true that BNPL is relatively expensive to operationalize. Brands must pay a fee for the BNPL payment option—many retailers have yet to offer it as a method of payment. Also, with so many checkout options, retailers may struggle to see the value of yet another payment option.
However, many benefits could outweigh these costs. Brands and retailers alike should consider the bigger picture for:
New customers: Especially for larger or splurge purchases that shoppers need or want now, offering BNPL creates a competitive advantage, especially with the youngest shoppers. In a recent Ipsos survey, more than half of U.S. consumers, 54%, say they would be “likely to use an installment loan or BNPL.” Nearly two-thirds of 18- to 34-year-olds say that they would use a BNPL option at checkout.
Convert shoppers to buyers: Having the option of smaller payments over time is a strong incentive for shoppers who would otherwise wait until they have the full amount and don’t want to use traditional credit. With no interest, the ability to break up the cost over a few months makes it easier for shoppers to check out.
More shopper loyalty: By helping shoppers get their products without saddling their credit score, brands and retailers can help shoppers feel in control of their budgets. This can help drive customer loyalty.
As shoppers grow accustomed to BNPL as a payment option, brands and retailers that adopt it will have another powerful tool to boost sales, customer engagement and loyalty.