You have probably already heard of Buy Now Pay Later (BNPL) and, if you don’t already provide it as a payment method in your Ecommerce, it is likely that you are thinking about it. In fact, with the increase of Buy Now Pay Later apps and their popularity within online payments, it has become a must in order for your Ecommerce to be competitive in the world of alternative payment methods. Nowadays customers are more and more tech-savvy and look for methods they are accustomed with and that can simplify their payment process. Buy Now Pay Later providers allow customers to buy a product while paying overtime in installments. Not only, most BNPL options are interest free for the customer. This payment method has huge repercussions on Ecommerce sales for merchants because it allows you to reach customers who may not have money availability at the moment or that do not feel comfortable with paying the full price in one go. In this article we’ll see all the other benefits of offering BNPL options in your Ecommerce check-out and how this is a great way to increase customer loyalty. But let’s first take a look at the repercussions of BNPL on the Ecommerce landscape worldwide and specifically in the UK.
Buy Now Pay Later continues to earn market share worldwide, expecting to double from 2.1% in 2020 to 4.2% by 2024. In 2020, 5% of Ecommerce transactions in the UK have been paid with BNPL solutions.¹ Instead of slowing down its growth, the covid pandemic has positively influenced BNPL’s market. In fact, interest-free loan solutions during times of economic uncertainty can support customers in their bigger purchases by giving them the right security for larger investments. A research by Finder.com showed that, in the UK, 1 in 3 respondents used BNPL apps during 2020 in roughly the same amount as they did before lockdown and, although the usage of BNPL apps was higher during lockdown, one third of respondents said they would continue to use it after the lockdown.²
This market that is already established in New Zealand and Australia is now rapidly growing in the US and UK and in Europe in countries like Germany and Sweden.
As regarding Buy Now Pay Later in the UK market, the most popular apps from January to July 2020 by number of downloads are Klarna with almost 1 million downloads, followed by My Argos Card, which had over 500 thousand downloads, ClearPay, Laybuy and Openpay.²
Moreover, if you are thinking BNPL are used only by younger generations, you must think again! In fact, although Millennials and Gen Z are the generation that use this payment method most often, over 37% of customers using BNPL options are Gen X (born from 1965 to 1980) and over 23% the so called Baby Boomers (1946-1964).² As we saw on a different article about generational comparison on the use of payment methods, younger generations are more inclined to quickly accept and use new payment methods and adapt to change, but they are also more active on social media, where the biggest BNPL brands like Klarna are mostly focusing their marketing campaigns. Therefore, although you should consider providing a BNPL option at check-out for any target audience, if your target is young customers this should be a must.
Now that we have seen the quickly expanding market of BNPL worldwide and in the UK, let’s dive into why you should definitely consider providing one of these payment methods in your Ecommerce. Firstly – contrary to popular belief - fashion is not the only sector that may benefit from this kind of payments. In fact, Amazon itself has chosen to focus on a Pay Later solution for larger products like electronics and for utility bills. Moreover, about one in three UK consumers used to pay with Buy Now Pay Later (BNPL) methods when purchasing casual wear, as revealed by a survey conducted in 2021. Another 31.4% used to do so when eating out, while 25.7% of respondents used a BNPL solution when purchasing beauty products, over 20% for tech products and 18% for travel.³ Therefore, regardless of the product, this solution can be right for your business model.
Moreover, since these options are growing in popularity customers are now expecting to find them when shopping online and by providing the possibility to pay in different installments you can influence the customer decision to purchase an item. A research carried out in 2021 shows that 44% of people who were interviewed would use BNPL options more often if merchants offered them and only 4% disagreed with that statement.⁴
One of the main strengths of Buy Now Pay Later is that they give a solution to what in the business and marketing world is called “pain point”, a specific problem experienced by a prospective customer. In fact, people can find themselves in need to make large purchases in time when they don’t have financial availability to do so. Big expenses like electronics can add up to other expenses like utility bills, car check-ups or household renovations, just to name a few. Being able to provide flexibility of payments through varied payment methods and interest-free loan options at check-out builds trust and increases customer loyalty for your Ecommerce.
Big companies like Amazon have seen an opportunity and have started to experiment with BNPL options themselves. In fact, Amazon has already jumped on the BNPL bandwagon by starting with India and it will likely quickly expand to other markets like the US and Europe. According to Amazon’s press release in June 2021, Amazon Pay Later, which was launched during the covid pandemic in India, has reached 2 million customers and over 10 million transactions have been recorded with a success rate of 99.9%.⁵ Signing up to Amazon Pay Later allows you to pay on Amazon.in in EMI (equated monthly installments), which are installments of the same value, or the full amount the month after the purchase.
PayPal is also active in different countries like Australia, the US and UK with solutions like Pay in 4 or Pay in 3, where your customers can split their purchase into three or four interest-free payments, with no set up fees or charges.
In the meantime, companies like Klarna or Afterpay have started loyalty programs for their users. By downloading their app and signing up to the program, customers can choose among many brands which offer payments in installments and earn reward points that they can use during the next purchase. Being part of the brands in the rewards program can be a great way to increase loyalty to the brand and have recurring purchases from the same customer.
However, there are many other advantages to integrating Buy Now Pay Later into your Ecommerce check-out page:
If you don’t already have BNPL as a payment method in your Ecommerce it is important that you add one or more of the options available on the market in order to reach a wider public and to provide the payment method that customers are asking for. If you sell a product or service that targets younger populations this becomes a prerogative in order to remain competitive against your competitors. Moreover this can be a way to build trust and loyalty with your customers and make the most of the reward programs BNPL companies are now building.
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