What instant lending innovation have shoppers fallen in love with? Here’s a hint: We’ll tell you now … and you can thank us later. Between 2018 and 2019, there was a 162 percent increase in buy now, pay later (BNPL) downloads – rising to roughly six million – of the most popular new “layaway” apps by the close of last year. It’s a bona fide phenomenon.
Consumers love the delayed payment options and so do retailers, but the BNPL players themselves are loving their business model, too. The IOU apps are reporting that average order value is typically higher, and checkout conversions surge 30 percent for retailers using BNPL.
These and other tantalizing truths are found in the March 2020 Buy Now, Pay Later Tracker®, a PYMNTS and Afterpay collaboration. And while it started out as a way to get those $125 sneakers, BNPL is branching out into luxury (and even cars) as the concept seeks its own level.
Bigger Orders, More Conversions
For an important BNPL case study, we look to Australia, where Sydney-based market leader Afterpay has made such a splash that it’s changing the economy (sort of). As laid out in the latest Tracker, credit card usage has declined down under since BNPL went wide a few years ago, with 8 percent of all retail transactions in that country going through Afterpay in 2019. It’s growing fast and expected to account for $8 billion USD in sales by 2021.
The timing is good for BNPL brands, as physical retail stores struggle to stay relevant and eCommerce players try to crack the checkout conversion code.
“[BNPL] is being adopted even from our core customer base, more so than I would have expected,” Chad Miller, senior director of digital experience for retailer Designer Brands and popular shoe merchant DSW, told PYMNTS. “Yes, we are converting customers that we may naturally not have, because now we provide a new piece of the customer experience to them. But we are also seeing [that] even our customers who have been loyal to us for a very long time are also taking advantage of this alternative payment type.”
Put another way, BNPL is proving to have legs beyond even the most optimistic forecasts. The strength of the proposition to the consumer couldn’t be simpler: Get the thing you can’t afford right now in a way that feels less costly than using credit. And 40 percent of consumers say they’d be more likely to complete transactions if offered options like BNPL at checkout.
The Credit Trap Redux?
Not everything about BNPL is happiness and smiles. While this form of alt-credit was in some ways a response to recession-era fear of credit, there are those (including government regulators) in India and elsewhere that want to pump the brakes on BNPL, lest shoppers start finding themselves upside-down and facing personal financial setbacks as a result of BNPL.
“Payment providers must keep global consumers’ changing payment behaviors in mind. Many are leaving credit behind, with approximately 40 percent of millennials fearing credit card debt,” the report states. “Payment services companies must quickly figure out credit alternatives while taking consumers’ spending fears into account.”