How “Buy Now, Pay Later” Services Are On The Rise

“Buy Now, Pay Later”. Thanks to lockdown, our need for instant gratification, and the younger generation’s mistrust of banks: they’re becoming more prevalent. 

They used to run off credit and interest, but as they become more popular and the demand for their services increase, they evolve.

Now, you can use “Buy Now, Pay Later” services without it impacting your credit or without any cumbersome sign-ups.

Sounds great, right?

So why do so many “Buy Now, Pay Later” services have critics? 

Some people argue that these delayed payment services aren’t as great as they seem. And that they cause problems for consumers and businesses alike in the long run.

But, what are “Buy Now, Pay Later” services? How do they impact the running of a business?

Read on to find out.

“Buy Now, Pay Later” companies, or BNPLs, are services that offer consumers the option to receive a product before they have purchased it.

Meaning, that consumers can receive a product and pay for it later. Either as an installment plan or paying in whole after a fixed term.

Most notable BNPL services include Klarna, Clear Pay, Affirm, and most recently PayPal.

And they have massively become more popular over the past few years.

According to a Compare The Market survey, 1 in 5 shoppers use a BNPL scheme in the UK in 2019. And the biggest users of BNPL services are those aged 25-34.

So, why do BNPLs appeal to consumers?

“Buy Now, Pay Later” schemes are appealing for those who work in a job that pays monthly and for people who live paycheque to paycheque. It allows them to purchase products and pay at a later date when they’re more financially liquid and thus doesn’t disadvantage them.

As such, “Buy Now, Pay Later” services are extremely popular at Christmas time.

The rise of consumers who use BNPL services during the festive season skyrockets, as often people struggle to afford gifts during this period until after they get paid.

Because of this, likely, BNPL services are here to stay.

Aside from the obvious, that being that BNPL services allow you to receive a product before you pay for it, they are also beneficial for those wanting to test out products first.

If you’re wanting to try on a piece of clothing, test out some electronics, or see if a product is suitable for your needs – you can do so before paying. Meaning that if you have to return the product, you’re not waiting for money to come back into your account because it never left it.

What’s more, a lot of these BNPL services do not run credit checks. Nor do their services impact your own credit.

In fact, many of these services don’t even use late payment fees. They simply state that if a payment is severely late – by 90 days, for example – they will try contacting you to receive their money.

This is a huge benefit for lots of consumers as they don’t want to use “Buy Now Pay Later” services if it impacts their credit.

With the vast majority of consumers being young people and Millennials, it makes sense why they would be wary of services that could damage their credit scores.

So, now you know how BNPLs work for the consumer, and what the benefits are.

What about the retailers?

Firstly, you’re paid upfront and in full. That’s right. As a retailer, you’re not waiting for the money to come in directly from the consumer. Rather, the service provider (Klarna, PayPal, etc.) will shoulder the burden.

Meaning that they will take on the financial responsibility of chasing up after the money.

What’s more, using a BNPL as a retailer will boost your conversion rate. Considering that consumers are appealed to instant gratification – being able to receive the product instantly, or the next day – it compels them to purchase more.

In fact, according to VendHQ, merchants who offer BNPLs find that their conversation rates increase by 20-30%.

As well as this, offering a BNPL will also boost your average transaction value. VendHQ found that for retailers who were using Klarna, on average their transaction value increased by up to 68%.

Ultimately, if you are a retailer offering BNPLs at your checkout, you’re likely to see an increase in sales.

BNPLs are appealing to many demographics for lots of reasons, and when they don’t come at any cost to you, the retailer, why wouldn’t you offer them?

However, it would be an oversight not to mention the criticisms of “Buy Now, Pay Later” services.

In fact, some critics are labeling these services as “little more than payday loans with good PR.”

But, what does this mean?

According to comparethemarket.com’s Head of Money, BNPLs can damage your credit score if you’re using a credit-based service. It can cause people to become further indebted based on their spending, and when you’re unable to pay it back, the additional late fees and charges don’t help.

What’s more, BNPLs have also come under fire for fostering a culture of debt dependency. Particularly amongst young people.

Given that the majority of BNPL marketing comes through social media – the use of influencers, social media ads, and sponsored posts – it’s often targeted to and appeals to younger people.

Especially when one considers how impressionable younger consumers are, and how often they base their shopping habits based on social media trends.

Because of this, critics of BNPLs claim that they teach the younger generation poor money spending habits.

In fact, so much have these services come under fire that some are even going as far as to create alternative services that allow you to save in increments for a specific product, rather than use a BNPL.

Because of this, companies and businesses that are considering offering BNPL should be cautious.

You must certainly think about how you’re going to market your BNPL service, who you’re marketing it to, and what message you’re pushing.

“Buy Now, Pay Later” services are impacting how businesses are being run in numerous ways.

Firstly, they can offer some great promotions for businesses.

Lots of these services like Klarna and Clear Pay have directories of all the businesses they work with. Meaning that it’s an additional way for a business to be seen by consumers.

What’s more, a lot of these services even go a step further. Featuring businesses in a ‘business of the week’ or ‘prominent Black-owned businesses’ section on their websites and blogs is a great way of getting some additional publicity.

However, there are some negatives impacts on businesses using BNPL services.

For starters, some business owners like Markesha Tillman, a retailer company owner speaking to PYMNTS, said that she felt pressure to keep up her business’s appearance and social media presence now that she’s part of the BNPL group.

She claims that she’s now more conscious of how her social media looks, given that Afterpay, the BNPL service she uses, follows her. For some, this can be an added pressure they can’t afford.

What’s more, BNPLs don’t work for free.

According to a report carried out by Big Commerce, “Buy Now, Pay Later” services charge on average 2-6% commission per transaction carried out, as well as a fixed rate fee.

Meaning, that for smaller businesses who are struggling with their sales, they need to weigh up whether using this type of service is worth it.

You may result in losing revenue, despite the increase in sales.

So, how are “Buy Now, Pay Later” services impacting the future of businesses?

Firstly, BNPL services are becoming so common that businesses who don’t offer them are seeing a detriment.

According to an investigation carried out by Harris Interactive, 52% of consumers using BNPL services said they would not shop with a retailer who does not offer this as a payment option.

That’s over half!

Because of this, many retailers are feeling pressure to start offering “Buy Now, Pay Later” as a payment option.

Meaning that the future of businesses could see a huge shift towards this.

However, whilst BNPL services might start to emerge more rapidly, there is a sector of retailers who seem to oppose them.

Many have noted that high-end retailers, such as high fashion brands and more luxurious stores, are wary of offering BNPL services.

It seems that BNPLs have a connotation of working with more high-street brands and businesses. And, as a result, these businesses are worried about their image or reputations being tarnished for using them.

Because of this, there likely will be a divide in the retailers that offer BNPL as a payment option.

Whilst it seems that they certainly will become more popular as time goes on, not everyone is going to be embracing the service any time soon.

It’s no surprise that thanks to Covid-19, the cultural shift towards immediate purchases, and new demand from younger consumers, that “Buy Now, Pay Later” services are on the rise.

They offer an opportunity for businesses to boost their sales and publicity, as well as increase their consumer base.

However, BNPLs don’t come without their costs – literally.

The charges incurred for retailers can sometimes outweigh the boost in sales. And, some retailers may be wary of using them considering the implications BNPLs possess.

In either case, “Buy Now, Pay Later” schemes are certainly something to bear in mind as they increase in popularity.

So, does your business offer BNPL as a payment option. And, if not, will you?