What Is Buy Now, Pay Later (BNPL)?
Buy now, pay later is a kind of point-of-sale lending that allows shoppers to make purchases that they pay for at a later date, often with low or no interest. “BNPL has truly gone mainstream,” said Marie-Claude Nadeau, co-leader of McKinsey’s payments practice for North America.
While presenting at this year’s Money 20/20 event, Nadeau said that 30 percent of consumers currently use BNPL, according to McKinsey’s research, and an additional 10 percent are either interested in or excited to use it in the future.
There is no one provider that has a stranglehold on the market, Nadeau said. PayPal, Afterpay, Affirm and Klarna are all players in the space. Transactions often require some form of down payment, then spread out the balance across interest-free installments. Payments can be made by check, bank transfer or credit card.
This differs from traditional credit card purchases in two ways: First, the payments are often interest free, while credit card balances that carry over are charged interest. Second, BNPL balances must be paid off with the installments, while consumers are able to carry a balance on credit cards (though that balance will accrue interest).
What Does BNPL Mean for Retailers?
The rise in popularity of BNPL has shown how important it is to a retailer’s overall e-commerce strategy and bottom line. Many who use this form of payment end up spending more, according to Nadeau.
“About 30 percent of consumers who use BNPL say this was an incremental transaction,” Nadeau said. “Either they would have not paid the transaction if they had not had the BNPL option, or they would have purchased a smaller amount. For retailers, that has quite a bit of value.”
About 70 percent of consumers who use BNPL didn’t purchase more than they otherwise would have, but they did use it to replace another form of payment. For 40 percent of them, it replaced the use of a credit card, making BNPL a viable payment option that should be included in all e-commerce ecosystems.
To accommodate this strong demand, retailers need to have a modernized IT infrastructure to support BNPL. Legacy systems can be challenging to integrate with providers. E-commerce systems should have automation built in to help with this, according to Finextra. Without back-end infrastructure that is scalable, flexible and secure, organizations can’t capitalize on this movement.
As popularity grows among millennial and Gen Z shoppers, retailers with an e-commerce presence must be technologically prepared to integrate BNPL options or risk being left behind.