The Buy Now, Pay Later (BNPL) sector is rapidly transforming the global payments landscape.
With its more flexible payment options, BNPL is gaining increasing popularity amongst consumers, retailers, and fintechs around the world.
But what exactly is BNPL, what are the benefits on offer to you and your customers, and has it now become a must-have proposition for merchants seeking growth?
Gen Z is leading the way – but it’s not alone
BNPL is a type of short-term financing that enables consumers to make purchases and pay for them over time. It’s essentially a point of sale (POS) installment loan that usually doesn’t charge interest. BNPL services like Affirm, Afterpay, and Klarna offer BNPL financing on purchases at participating retailers, and have been strengthening their grip on the world’s checkouts.
We recently had the pleasure of welcoming Julian Martin Capote, Head of Payments and Partnerships, Miravia, as a guest on our Pay it Forward podcast. Miravia, which is part of the Alibaba Group, is a new e-commerce model launched in Spain that’s improving customer satisfaction through value-added services, like cashback, and the integration of diverse payment solutions, including BNPL.
“Consumer preferences are changing and businesses must adapt,” he said. “BNPL is becoming a must-have solution for e-commerce platforms, especially when you are targeting younger audiences, because younger people are less familiar with using a credit card. Many will have never had one, so they are looking for alternative solutions at the POS to finance their purchases. In Spain, we’ve seen this payment method gaining a lot of popularity in recent years, and the same is true across Europe.”
The latest data backs up this sentiment. Market research company Opinium found that nearly one in five (18%) Gen Z consumers in France, Germany, and the Netherlands are now actively using BNPL.
According to a recent industry report, BNPL payments in Europe are expected to grow by 15.2% on an annual basis to hit $219.2 billion by the end of 2024. BNPL payment adoption is then expected to grow steadily over the forecast period, recording a compound annual growth rate (CAGR) of 10.1% between 2024 and 2029. It’s anticipated that the BNPL gross merchandise value in the region will increase from $190.2 billion in 2023 to $354.3 billion by 2029.
Interestingly, the report remarks that it’s not just younger generation shoppers turning to BNPL; older cohorts are also relying on the payment solution to fund their everyday purchases as inflation continues to take a bite out of their household income.
“As is the case with technology in general, younger people usually lead the way in adopting new payment methods,” explained Jonathan Arler, Netherlands General Manager at payabl. “Gen Z’s payment preferences will continue to drive the way the merchant community invests in, and leverages, new POS technologies – but it’s important to be aware that BNPL also appeals to older groups as well.”
And BNPL isn’t just making its mark in Europe. More than a third (37%) of US Gen Zers and a similar proportion of the older Millennials group (32%) have used a BNPL service to make at least one purchase recently.
Understanding the benefits, and implications, of BNPL
The major benefit for consumers is that BNPL services allow them to break up payments into smaller, more manageable amounts. So when making a big purchase, they don’t need to wait for their next payday. It gives them immediate access to more expensive items.
While credit cards typically have a much stricter approval process, and higher fees and interest on unpaid balances, BNPL offers near-instant approval with looser lending restrictions. Most BNPL services only run a soft credit check that won’t impact a customer’s credit rating.
There are also a number of associated benefits for merchants. Potential customers can access credit even if they have a less-than-perfect credit score, which can result in more sales for your business. It’s a more inclusive payment method that boosts conversion rates as a result.
BNPL opens the door to new customers while encouraging them to make higher-value purchases from your store. However, there are some drawbacks for your customers, which you should be aware of. If they miss a BNPL payment, for example, there may be penalties. Depending on the amount charged by the BNPL lender and how such fees are structured, they can add up quickly.
Another factor you should consider is how you will integrate BNPL services into your existing POS systems. Bringing the processing in house can be costly and complicated, and it’s worth considering working with a specialist payments partner.
Ultimately, BNPL’s footprint is expanding rapidly, and you will need to carefully consider how to best incorporate the proposition to support your sales, especially if you have younger customers. We’re always working closely with our merchants to help them integrate new payments propositions in a way that works for their business.