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The Rise of Buy Now, Pay Later – What It Means for Consumers and Retailers

blog business business breakdown buy now pay later consumer trends holiday shopping online payments online shopping the edge newsletter Oct 28, 2024

The “Buy Now, Pay Later” (BNPL) trend has changed how people shop online. BNPL lets customers buy items right away and pay for them in smaller amounts over time, rather than all at once. Companies like Klarna, Afterpay, Affirm, Apple, and PayPal offer these payment options, which are especially popular with younger shoppers who want more flexibility than a traditional credit card.

This article explains what BNPL is, why it’s become so popular, and what it means for both shoppers and businesses.

1. What Is BNPL and How Does It Work?

BNPL lets shoppers pay for items in small, often interest-free, installments over a few weeks or months. At checkout, the shopper can choose to split their purchase into smaller payments. BNPL companies, like Klarna or Affirm, earn money by charging the business a fee for each transaction. They also make money from late fees if a shopper misses a payment. Unlike credit cards, BNPL payments usually don’t add interest if paid on time, which makes them appealing to many people.

2. Why Consumers Love BNPL

Many shoppers, especially younger ones, like BNPL because it gives them the freedom to buy things without paying the full amount upfront. Younger shoppers who might avoid credit cards due to high-interest rates or the risk of debt see BNPL as a simpler, safer option. BNPL services usually don’t require a credit check, which is another reason they’re accessible to more people. They’re particularly popular with people under 40, who appreciate the convenience and interest-free option if they pay on time.

3. Why Retailers Are Offering BNPL

For businesses, offering BNPL can boost sales. When people know they can pay over time, they’re more likely to make larger purchases. According to Afterpay, stores that use BNPL see a 20-30% increase in completed sales and customers spend 30-50% more on average. BNPL also helps reduce the number of “abandoned carts,” where customers leave items in their carts without completing the purchase.

However, businesses have to pay BNPL providers a fee, which is often higher than the fee for accepting credit cards. For smaller businesses, these fees add up quickly, so they need to decide if the potential for increased sales makes it worth the cost.

4. The Risks of BNPL

BNPL has become so popular that regulators and financial experts are starting to worry about potential downsides. Since BNPL is so easy to access, some people spend more than they can afford, using BNPL for multiple purchases across different providers. This can lead to debt if payments are missed and late fees add up. The Consumer Financial Protection Bureau (CFPB) has raised concerns about whether people understand these risks.

Another challenge is that traditional banks and big tech companies, like Apple and PayPal, are also joining the BNPL market. With more companies competing, BNPL providers may start to offer additional benefits, which could help consumers but might also encourage people to spend even more.

An economic downturn could also affect BNPL’s popularity. If people face financial hardship, they might struggle to make payments, which would hurt both consumers and the BNPL providers that rely on regular payments to stay profitable.

5. What’s Next for BNPL?

BNPL is here to stay, but it will keep evolving. Regulators might soon require BNPL providers to be clearer about fees and terms, making it easier for consumers to understand the risks. To grow, some BNPL companies are starting to offer services beyond shopping, like helping people pay for medical expenses or home repairs. With more competitors joining, BNPL providers may start offering rewards or special benefits, similar to what we see with credit card programs.

For businesses, offering BNPL can attract new customers, but it’s important to balance the cost of BNPL fees with the potential for higher sales. For shoppers, BNPL can be a helpful way to spread out payments but should be used carefully to avoid debt.

BNPL is reshaping the way people shop by making it easier to buy now and pay later. It offers flexibility for consumers and more sales opportunities for businesses. However, as with any new financial option, it’s important to stay informed about the costs and potential risks. BNPL is a convenient tool when used wisely and with an understanding of the responsibilities involved.

If you've found value in these insights, I invite you to dive deeper into the world of business growth by subscribing to the Candy Valentino Show on Apple Podcast.

You can also explore further business training opportunities at foundersorganization.com to see our upcoming events and services.

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