BNPL – here to stay ?

The growth in the usage of eCommerce channels and platforms has taken the world by storm. As of 2021, 19.6% of all the retail sales worldwide were done through eCommerce platforms. The Buy Now Pay Later business model has reaped the benefits of the growth in online sales. Although this model has been around for a considerable period of time, it saw a major boost when a large number of consumers turned to online platforms for purchases and business during the pandemic. A high demand for products and services combined with a smaller amount of cash in hand due to the economic slowdown led to consumers realizing the benefits of the Buy Now Pay Later option. Although from the face of it, it seems that this model has immense benefits solely to customers, in reality, this option has many benefits  to the merchants as well. A large number of eCommerce platforms and merchants today offer the Buy Now Pay Later option allowing customers to purchase and receive their products or services without making any upfront payment. Buyers may pay the amount at a later date with zero or low-interest rates. 

Source: McKinsey & Company

The graphs above clearly show active engagement by the Buy Now Pay Later customers across transaction volumes. It also shows the increase in the longevity of customer relationships sighting clear advantages of such a business model. 

Merchants have in time recognized the benefits of marketing this option to their customers. Some of the major benefits enjoyed by the merchant are listed as under:

  • A higher conversion rate: Research showed that numerous retailers saw an average of 2.1% higher conversion rates when they offered the Buy Now Pay Later payment option. 
  • Increase in the ticket size per order: Retailers offering this option as a way of payment have seen their average ticket size per order increase by 85% over other modes of payment. 
  • Higher sales: Merchants that offer multiple payment options including Buy Now Pay Later have seen their sales rise exponentially. The convenience of the payment process to the consumer encourages him to shop for more than one required product or service. This leads to a higher growth in the volume sold.
  • A reduction in Cart Abandonment Rate: An in-depth study conducted by Mastercard showed that by integrating payment options like Buy Now Pay Later, the rate of cart abandonment was reduced by 35%. This has been made possible because the Buy Now Pay later option has helped the consumer to split the price of expensive products on their list and make affordable payments over time. 

The jury is still out whether BNPL creates a debt trap for customers and makes them stretch beyond their means. Also regulators world wide are rolling out regulations to bring this industry within the realms of prudent lending. However, one thing is clear, that BNPL has fundamentally changed how credit is consumed by customers and with the likes of Apple rolling out its pay-later product, the coming years will tell us whether it is here to stay.

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