Deep Dive: How Buy Now Pay Later Is Revitalizing Retail and the Economy

buy now pay later installment payments consumer payments

Buy Now Pay Later Afterpay Tracker November 2021

Pandemic-related concerns and restrictions occurring in 2020 caused both retailers and consumers to pivot sooner than expected to newer, digital ways of doing business. Shoppers preparing for the 2021 holiday season are unlikely to want to give up the shopping and buying conveniences they have grown accustomed to during the past 18 months. 

Buy now, pay later (BNPL) plans have gained popularity, allowing shoppers to pay off their purchases over time, usually in equal installments payable every couple of weeks, beginning with an initial payment at the point of sale. A recent report from Accenture found that consumer spending using BNPL options has increased by 230% since the beginning of 2020, resulting in shopping basket sizes up to 17% higher in value.Monthly sales generated by buy now pay later websites

A recent study estimated that 29 million consumers — 11% of the U.S. total — have used BNPL as payment in the last 12 months. A March 2021 survey also found the highest growth in BNPL use among both the youngest and the oldest user demographics, with surges of 62% in 18- to 24-year-old consumers and 98% in consumers that are 55 and older.

Older shoppers may recognize BNPL as a trendy new way to pronounce the word “layaway,” but the crucial difference is that BNPL allows customers to take custody of their purchases immediately, rather than putting them aside until they have paid for in full. 

PYMNTS’ research suggests that these new shopping tastes may be critical to the survival of business. A September 2021 PYMNTS survey of 2,719 small to mid-sized businesses (SMBs) found that 63% of firms in the retail trade sector said BNPL programs have been vital to their recovery from the pandemic. 

The aforementioned report from Accenture also found that using a BNPL service such as Afterpay may incentivize customers to spend more with retailers. It indicated that consumers using the service would collectively save up to $459 million in fees and interest they would otherwise incur if they used credit cards for their purchases, nearly $6 per order. 

Those savings add up for merchants as well. The same report suggested that merchants using Afterpay gained an average of 13% more customers and generated $8.2 billion in new revenue in 2021. Merchants also saved approximately $590 million in costs, with nearly 50% of those cost savings resulting from lower customer costs. 

By contrast, just 2% of firms that failed to offer BNPL programs reported recovering fully. The following Deep Dive examines PYMNTS’ latest research on BNPL’s place in retailers’ business strategies, revealing how this payment method may play a crucial role in the economic recovery of retail. 

BNPL Holds Massive Sway, Despite Cost

How firms value Buy Now Pay Later websites in economic recoveryPYMNTS’ findings suggest that while larger retailers have the financial ability to invest in BNPL technology and services, SMBs are having a more challenging time tapping into these new payment solutions. Sixty percent of the total sample of surveyed businesses offered BNPL, but these payment plans were significantly more popular among respondents with higher annual revenues. Seventy-four percent of businesses with annual revenues greater than $2.5 million offered BNPL, compared to just 39% of those with annual revenues of less than $250,000. 

BNPL helped the surveyed businesses overcome the pandemic-caused drop in sales, with 54% of respondents attributing more than half of total sales since the pandemic’s onset to this payment method alone. In fact, 21% of businesses in the retail trade segment said that BNPL generated three-quarters or more of their revenues. That figure rose to 26% among construction or contracting firms. One-third of arts and entertainment businesses surveyed said that BNPL was responsible for between 50% and 74% of their sales. 

To know BNPL is to love it, as 79% of SMB respondents already featuring the method said they were likely to implement it again in the next 12 months. This figure rose to 85% for the retail trade segment in particular. On the other hand, firms that are not currently offering BNPL payments were reluctant to implement the option. Nearly three-quarters of respondents that do not offer BNPL said they are “not at all” or “slightly” likely to convert to adopting such programs in the next year. 

The costs associated with implementing BNPL might explain these firms’ reluctance. SMBs often need the quick and guaranteed revenue offered by cash and other traditional payment methods. Even 68% of the respondents that currently do offer BNPL complained that the costs of introducing these programs exceeded the revenues they generated. 

Some BNPL benefits may be less immediate, however. Survey respondents indicated that BNPL works best as a promotional tool for customer acquisition, bringing in new shoppers who may not have purchased without the BNPL option. This can be very valuable in the long run, even when the costs of delivering the service are higher than the immediate revenue it provides.

BNPL Helps Businesses Recover

Perhaps the most striking impact of BNPL on survey respondents was that companies offering the method reported having an easier time recovering from the pandemic than those that did not offer it. More than one-third of respondents that offered BNPL said that despite having suffered a negative impact from the pandemic, their businesses had made a full recovery since then.

Only 2% of businesses that did not offer BNPL could say the same, with 17% reporting that they had not recovered. By contrast, just 8% of firms offering BNPL said their businesses had not recovered from pandemic losses. More than half of survey respondents said that BNPL was “very” or “extremely” important to their segment’s economic recovery, and that figure increased to 87% in the real estate sector and 63% in retail trade. 

Offering BNPL requires an initial investment that may seem daunting to small business players, but the long-term payoffs can be substantial in both revenues and customer acquisition. Businesses implementing BNPL methods stand to gain as the economic recovery continues.