The rise of eCommerce has had a huge impact on the payments industry and the expectations of consumers around convenience. Convenience in the way they shop has also led to consumers looking at new, convenient payment models that allow for more flexibility, such as paying in increments over a set period of time. This, combined with some consumers wanting to manage their cash flow due to factors like job loss and furlough, has meant pre-pandemic rules no longer apply and retailers need to make sure they are keeping up with consumer trends, in order to remain competitive.
This was unearthed in a recent four-part report from emerchantpay, which explored the ways that COVID-19 shifted consumer behaviour. It found that Buy Now Pay Later (BNPL) models will continue to gain momentum as, in 2021, 38% of consumers said the option to buy now and pay later increases their chance of making a purchase.
It comes as no surprise then, that BNPL is expected to become a mainstream method of payment in a post-pandemic environment. This in part, is due to a lot of retailers using it as a payment method, in order to capture the rising number of online shoppers. What’s more, eCommerce is not set to decline post-pandemic, with one in five shoppers reported to be more inclined to shop online now in comparison to pre-pandemic levels. Our data shows that 27% of Gen X (41 – 56 years old) and even Baby Boomers (57 – 75 years old) are expected to shop less on high-streets in ‘the new normal’.
As consumers increasingly turn to online shopping, they will look for eCommerce sites that offer easy transactions and flexible payment options – BNPL does just that. Both Affirm and Klarna have reported that offering online BNPL solutions generated an 85% lift in average order value, a 20% repeat purchase rate and an increased customer conversion.
Since the UK BNPL space began taking shape in 2014, it is now only just entering the mainstream market with one in three UK consumers saying they used instalment based services more often than before in early 2020. The steady growth in eCommerce suggests that now is the perfect opportunity for merchants to adopt BNPL.
The steady growth of Buy Now, Pay Later
The economic effects of the pandemic have been devastating, causing a stark increase in economic volatility. For many, BNPL was a form of financial inclusion giving consumers a way to stagger payments through manageable instalments, often without interest. In other words, BNPL gave people the chance to manage their cash flow during times of financial uncertainty. It is a flexible way to spread out payments, offering customers the ability to buy goods that they may not have bought if required to pay in full at checkout.
Klarna, for example, gives consumers the choice to pay in four interest-free instalments or in 30 days. Both of these options only require a ‘soft credit check’ that does not impact a consumer’s credit score as it is not associated with a specific application for credit. Others offer financing options. While this does require a full consumer credit check, if successful, it enables customers to pay with BNPL instantly.
BNPL’s convenience speaks for itself with its services growing at a rate of 39% a year. Further, by 2023, 3% of global eCommerce revenue will come from BNPL. This data proves that BNPL services are attractive to consumers, but what are its added values for merchants?
An increase in online conversion rates
Merchants who adopt BNPL services will see an increase in online conversion rates as it offers consumers the ability to efficiently manage their cash flow. Another study by Klarna revealed that adding ‘pay later’ to their checkout process resulted in a 7% higher conversion rate when compared against traditional card transactions.
What’s more, while consumers tend to pay much later than their date of purchase, merchants offering the service will still get paid just a few days after shipping the product (depending on the BNPL provider’s terms). For many businesses, particularly SMEs, this ability offers significant cash flow benefits as they receive payment upfront and in full, irrespective of a consumer’s payment plan. Of course, the exact time frames are dependent on their agreement terms with their BNPL provider.
Encouraging big ticket sales
BNPL is also becoming increasingly popular as it enables consumers to make purchases on big ticket items such as appliances, TV sets and more by spreading out payments. This, in turn, encourages both sales conversions and increased revenue. The flexibility of BNPL has become an important purchasing criteria. In fact, according to online deal comparison site Finder.com, ten million Brits have reported to avoid buying from merchants that don’t offer this service during checkout.
Giving customers the option to manage their cash flow over time will influence an organic growth in ticket sizes as it promotes accessibility. As such, merchants will also be able to avoid over-relying on methods such as discounts and promotions. This, in turn, will combat the issue of converting sales at a lower price.
Customer loyalty
As a result of BNPL offering consumers financial inclusivity, merchants who offer this payment method will have more access to customers who would not have typically made a purchase. The explanation behind this is simple – flexibility. By giving consumers the freedom to spread out their payments for both in-store and online sales, a trusted and seamless shopping experience is inevitable, going hand-in-hand with offering greater confidence in their purchases.
A seamless experience is also helpful in boosting sales through customer behaviour and loyalty. In fact, BNPL fintech Affirm, has found that offering flexible payments has the potential to increase repeat purchases by 20%, as well as an overall improvement to a business’ online customer conversion rate. Ensuring that your payment offerings align with what your customers want is essential in obtaining customer retention. Therefore, creating an optimised experience, will not only satisfy your customers during the point of sale but will also encourage them to make purchases in the future.
The COVID-19 pandemic has highlighted just how important financial flexibility is and with eCommerce continuing to grow, the BNPL industry will follow suit. Its advantages cannot be underestimated. Instant credit, deferred payment arrangements and low credit cost create an extremely appealing package for consumers. For merchants who partner with a payments provider that offers the expertise on popular payment methods such as BNPL, a wider customer base and higher conversion rates are theirs for the taking.
