Many consumers started holiday shopping earlier than in previous years. Holiday deals started earlier and customers have been warned of supply chain disruptions, possible shortages, and delays.
Buy Now Pay Later options offer shoppers flexibility. They are able to buy items earlier in the season and pay them off throughout the next couple of months.
What is Buy Now Pay Later?
“Buy now pay later solutions are integrated into online checkouts and let customers pay for products in installments. Though the financial terms can vary by company, each lets the consumer get what they want immediately and pay for it over time.
It’s an increasingly crowded space, as pioneers like Affirm, Klarna, Clearpay, and Afterpay now compete with similar solutions from PayPal and Square. In some cases, installments can be a money-saving alternative versus using a credit card, which on average, charges a 17.14 annual interest rate.
Though credit card companies, and their banking partners, now offer similar installment options, buy now pay later firms often tout their perceived advantages versus credit card late fees, penalties, and compounding interest, like:
- Some solutions will show consumers the total amount of interest they’ll pay
- Others charge at all, though they will owe late fees if deadlines are missed
- Some allow consumers to choose their repayment plan (e.g. four installments every two weeks).
- Others charge no interest if the item is paid in full within 6–12 months, or will extend payments over a at a reduced annual percentage rate
Buy Now Pay Later differs from layaway in that customers receive the item right after ordering and are billed over a series of installments. Layaway was typical that an item was reserved for a customer, but they did not receive the item until the bill was completely paid off. BNPL can be used online and occasionally in-store. It is a payment option that helps customers with sticker shock or is attractive for retailers to help increase sales and decrease cart abandonment.
Nick Winkler explains, “The spending they are doing is being done increasingly online.
Adobe Analytics expects that by early October this year, 2020 online sales will surpass the total of all online sales made in 2019.
Canadian data suggests that while total retail sales fell by 17.9% between February and May as brick-and-mortar stores closed their doors, online sales surged 99.3% during the period.
With many consumers taking a cautious approach to spending , buy now pay later options will be increasingly attractive both in-store, but especially online, as a means for consumers to get the goods they want at a time when they may not be able to pay for them outright, and when the high-interest rates associated with credit card purchases are an unattractive option.”
Where BNPL is Heading
Shopify experts explain, buy now pay later isn’t new, it has just moved online. The data supports that offering installment financing increases sales. But interest and fees still apply, even if they are disclosed more transparently or less expensive than other forms of credit.
