If your customers are looking for an easier way to make purchases without breaking the bank, buy now, pay later (BNPL) may be the answer. By using BNPL services, shoppers can enjoy the convenience of making purchases immediately while still managing their finances responsibly through scheduled payments.
Learn how BNPL works and why it has become such a popular choice among shoppers today. And see how banks and financial institutions can incorporate it into their ledger offerings.
Table of Contents:
- What Exactly is Buy Now, Pay Later?
- BNPL Trends
- Just How Popular Is BNPL?
- Benefits of Using BNPL
- Potential Drawbacks of Using BNPL
- Why Banks Should Allow Customers to BNPL
- Offer Payment Installments With E6
What exactly is buy now, pay later?
BNPL is a type of short-form financing. It’s an increasingly popular payment option that allows customers to make purchases without having to provide the full upfront payment. Instead of paying in one lump sum, customers can split their purchase, or balance, into smaller installments that get automatically billed over time.
These plans can come with interest and late fees, but many BNPL apps charge neither. That makes this payment option attractive to customers, especially anyone shopping on a budget.
How does BNPL work?
Buy Now, Pay Later (BNPL) works by allowing shoppers to make purchases with the convenience of making payments in small installments over time. Upon checkout, customers will select BNPL as their payment option and provide their personal details, such as their name, address, and payment information.
After completing these steps, they'll typically be approved immediately or within a few minutes for a line of credit.
Once approved, shoppers can make purchases up to the limit assigned by BNPL providers before being asked to repay in smaller installments over agreed-upon periods of time.
They may also choose automatic payments from their provided bank account or credit card for added convenience - all without having to pay the full cost upfront.
Buy now, pay later trends
Buy Now, Pay Later (BNPL) services have seen significant growth in recent years as shoppers look for more convenient and manageable payment options, with an exponential amount of users since 2019.
With over 360 million BNPL users worldwide, it's a trend that financial institutions can't ignore. The BNPL industry is expected to rise to 900 million users by 2027 (an increase of 157%). The bulk of BNPL customers are Millennials and Gen Z, with almost half of the latter generation expected to use it by 2025.
That said, BNPL is not restricted to Millennials and Gen Zers. There is a shift happening: from 2018 to 2022, share of BNPL volume tripled (3.1% to 9.5%) among Baby Boomers.
The most popular buy now, pay later apps are Klarna, Affirm, Afterpay, FuturePay, and PayPal’s Credit and Pay In Four programs. With more buy now, pay later services becoming available in categories like healthcare, travel, gas, groceries, and legal services, adoption is expected to only increase from here.
Just how popular is buy now, pay later?
BNPL services are becoming an increasingly popular alternative to credit cards. In fact, 38% of users believe that BNPL will eventually replace credit cards altogether, with a majority (56%) stating that they already prefer the convenience and flexibility of BNPL when making purchases.
With this in mind, working with an issuer-led installments partner can only help your customer loyalty and satisfaction grow. Look for a partner with a flexible, future-ready platform and a variety of installment payment offerings to help diversify your service catalog.
Benefits of using buy now, pay later
One of the key drivers of this trend is the rise of online shopping, which has made it easier than ever for customers to purchase goods and services from the comfort of their own homes, and shoppers are looking for more convenient payment options that don't involve large upfront costs.
For shoppers
Shoppers who use buy now, pay later services enjoy a combination of convenience and financial flexibility. With BNPL, shoppers can make purchases immediately without having to pay the full cost upfront, and even avoid interest or fees. This makes BNPL an attractive alternative to credit cards. Additionally, BNPL services do not require hard credit checks and approval often takes just a few seconds.
Reasons why shoppers use BNPL:
- Reduce the impact of a big purchase
- Staying within a monthly budget
- Buying more things at once, and justifying a spontaneous or indulgent purchase
- Getting around a credit card limit
- Inability to obtain credit card approval
For merchants
Merchants offering buy now, pay later (BNPL) services have seen significant sales volume increases due to the convenience of payment plans. Since customers can split payments into small installments over time, they are more likely to purchase from stores that offer BNPL services over those that don't.
In fact, according to estimates by RBC Capital Markets, offering BNPL can boost your likelihood of a sale by 20-30% and lift average ticket size by as much 30-50%.
For financial institutions
The benefits of offering buy now, pay later (BNPL) services to financial institutions are numerous. By providing BNPL solutions, banks, and other financial institutions can capitalize on the growing popularity of this payment option and offer customers an easier way to make purchases without having to pay the full cost upfront.
By leveraging their existing infrastructure, financial institutions can quickly and easily incorporate BNPL solutions into their service offerings without having to build an entirely new product from scratch.
Potential drawbacks of using BNPL
While BNPL services offer a great deal of convenience and flexibility for shoppers, at the end of the day, BNPL is a short-term loan. BNPL users may be more likely to show signs of financial distress, like more debt, more delinquencies, and lower credit scores compared to non-users.
Before launching any new product, including issuer-led installments, you should analyze all risks you may encounter, ranging from typical credit risks to compliance and even reputational risks from poor program execution. It's important to be thoroughly prepared before getting started.
Why banks should allow customers to buy now, pay later
BNPL services have become increasingly popular in recent years due to the convenience and financial flexibility they offer shoppers. By allowing customers to make purchases without having to pay the full cost upfront, financial institutions can take advantage of a gap in the market: having everything connected to your debit or credit card.
By offering BNPL services as a bank, you're enabling your customers to enjoy the convenience, speed, and flexibility of a modern payments app, but with the value bonus of not having to juggle multiple lines of credit or apps.
Offer payment installments with E6
Ready to offer future-ready technology to your customers? At E6, we have a ready-to-launch payment installment solution that enables BNPL, installment cards, and loans. We put the power in your hands with Tritium®, our highly configurable platform. Customize eligibility, payment schedules, credit limit, fees, and interest. Create the perfect installments product tailored to your needs.
Interested? Contact us today to get started.
