Consumers have long grown accustomed to online shopping, but familiarity does not necessarily result in increased purchase volumes. They may spend hours browsing retailers’ online or mobile websites, only to abandon the items placed in their carts — the digital equivalent to window shopping. Shoppers left approximately $34 billion worth of abandoned goods in their online carts in 2018 — the equivalent of 7 percent of all digital commerce conducted that year.
Potential purchases get lost in limbo for various reasons, including checkout complexities or last-minute budget calculations. Cost is a major concern for consumers, especially for millennials and members of Gen Z, who tend to view spending differently than older generations. The former place greater weight on fees and interest that might be charged when making higher-value purchases with traditional credit products, and that wariness may prevent them from completing their transactions.
Retailers that rely on millennial and Gen Z buyers’ digital and mobile sales need solutions that solve both issues, nudging consumers past their doubts so they can quickly pay and feel safe in their transactions. BNPL options could improve the ease of use and financial security that cautious would-be shoppers feel they lack.
BNPL Solutions and Breathing Room
Millennial shoppers are contradictory: They are wary of credit cards and purchase-agnostic with both well-known and new brands, but also represent the top-spending generation in most retail categories. These consumers are also the most likely to purchase items over $500, making four such purchases on average in 2019. They are also turning to debit and other solutions for routine financial transactions, resulting in less credit card debt than what was seen in other generations and making online cart abandonment even more baffling. Millennials have available funds, so what keeps them from finalizing their purchases?
Digital cart abandonment appears to come down to two factors that have always helped or hindered shopping: money and time. Decreasing the time necessary to complete payments is relatively easy, if sometimes expensive, but altering prices can be more difficult. BNPL products are thus emerging as helpful solutions.
These offerings allow millennial shoppers to buy goods without tripping the financial anxieties they developed from managing student loans and other debts. Installment solutions break purchase amounts into smaller pieces, easing the financial pressures consumers might feel when shopping. Removing that strain makes it less likely that they will abandon their carts, thereby improving conversion rates. Recent research found that merchants offering BNPL tools may see such rates increase by nearly 40 percent.
BNPL options can also encourage customer loyalty, increasing both the frequency with which shoppers make purchases as well as the size of those transactions. Consumers appear to feel freer to shop once the initial price barrier is removed, with studies finding that retailers that used installment provider Afterpay have seen a 3 percent increase in total basket sizes since 2018. The company’s retail clients in Australia and New Zealand report seeing customers purchase up to 22 times more than they did prior to the implementation of BNPL.
Growth Breeds Competition
BNPL solutions can boost convenience for customers who shop on mobile devices and other channels, and mobile BNPL can also aid in customer loyalty, especially as Gen Z consumers obtain more disposable income. Competition among BNPL solution providers looking to work with popular retailers is therefore growing fiercer.
Providers must give consumers cutting-edge solutions, which often requires offering more benefits and fewer frictions. They need to do more than provide fast and convenient mobile experiences, however. BNPL solution companies must also maintain the customer loyalty they have cultivated with retailers’ consumers.
BNPL services are as dependent on goodwill as the rest of the retail industry, so offering financial freedom and support will be key. Successful options have already foregone fees and other frictions that may turn shoppers off, but providers must also educate consumers about avoidable financial surprises. Late installment payments can affect their credit scores, for example, and unprepared customers could hold this against both BNPL services and retailers. The most successful providers will thus be the ones that place their customer relationships front and center.