The blind side of Buy Now, Pay Later

Introduction 

Driven by a desire for flexible payment options and the aversion of credit card interest, Buy Now, Pay Later (BNPL) is an emerging payment offering, which has risen in popularity across the global payments landscape, with volume expected to double by 2025. Given the increased interest in the payment method, some trends in this space have been predictable (e.g. their popularity among younger consumers, the proliferation of new players in the market, the surge in interest around the 2020 holiday season). However, recent reports of consumer debt, as well as the scepticism with which some consumers view BNPL, present a new side to such services – one warranting exploration. Further, while many consumers may be interested in using BNPL, the perspective of the merchant is less clear. The focus of this article will be to provide some insight into these areas. 

Debt incurred through BNPL 

Articles featuring consumers claiming to lose their homes because of BNPL are mostly tabloids. However, stories leaving out any mention of how the streamlined checkout processes and advertising campaigns displaying influencers with thousands of followers across social platforms tend to drive usage are failing to present a realistic picture of such services too. BNPL advertising has been a point of contention over the past year, with Australia, the UK, Sweden, and California ramping up regulation. The response isn’t unwarranted given recent research from the Money and Mental Health Policy Institute demonstrating that individuals with mental health problems are much likelier to spend more through BNPL services than they can afford, make impulse purchases, and fall behind on payments. 

There’s also the matter of BNPL checkout processes themselves – seamless checkouts are prized by customers, but the dark side of making it easy to checkout is that it also becomes easier to overspend. Data provided by various BNPL firms also highlight how easy it is to become a recurrent customer – two-thirds of Klarna users in the UK use Klarna to buy products from more than one retailer at a time, and Afterpay’s top customers reported using the service up to forty-eight times per year in the US. Although these statistics on their own are not negative – repeated shopping doesn’t mean irresponsible shopping most of the time – when considered together with other data, it’s something merchants should be aware of as they make decisions about how and what type of BNPL options they want to support. 

Consumer uncertainty in the BNPL space 

BNPL is a payment option that is here to stay; yet although adoption is growing, so is consumer uncertainty. TSG data from our most recent consumer survey provides some insight into the attitudes of consumers and identified a variety of motivations behind aversion to BNPL. In total, 942 individuals provided feedback about their decision to avoid BNPL, citing reasons such as fear and unease, a lack of trust, financial hardship, already having a payment method they prefer, and just being unaware that BNPL exists. However, the largest group of consumers expressed open disdain for the idea of not being able to pay for a product immediately. This group of consumers equated BNPL to irresponsibility, and their comments underscore an image problem, which could present a challenge as the BNPL market matures. On a more positive note, there were plenty of consumers who had tried BNPL and reported liking the service. In fact, 85% planned to use BNPL in the future

The merchant perspective

There are numerous surveys of BNPL users, but far fewer taking the merchant perspective. Data from BNPL firms have presented some compelling reasons for merchants to take a hard look at their payment offerings and add flexible options. In general, BNPL options promote greater spending among consumers – per TSG survey data, 55% of consumers reported spending more money when they used BNPL at checkout compared to a different type of payment, and 79% indicated that they would use BNPL options more often if they were offered by more merchants. 

Some firms can be particularly lucrative partners and boast millions of users they can easily refer to merchants. Klarna has over 90 million users globally, while Afterpay reports 16 million consumers in the US. It’s also common for firms to highlight decreased cart abandonment as a key reason merchants should offer BNPL to customers. Though BNPL firms continuously cite such statistics, a broader study of the effects of BNPL on businesses would help to provide additional context and accounts from the merchants offering such plans to their consumers, and maybe even offer advice around how to get started doing so. Currently, there’s little in the way of guidance when it comes to merchant education in the BNPL space – specifically when it comes to the way fees for merchants are structured, how to ethically promote these types of plans, and areas where BNPL firms can improve in their partnerships with businesses. This is an oversight; a lack of feedback doesn’t mean all is rosy. 

Conclusion

The rapid rate at which consumers have come to expect BNPL checkout offerings has made fully understanding them a challenge as merchants race to find ways to capitalise on their popularity. As more research is conducted in the space, blind spots and areas for future study are becoming clearer. A few areas – the responsible use of BNPL, assuaging consumer uncertainty, and learning more about the needs and expectations of merchants looking to adopt them – will turn out more noticeable as the market matures.

This article is part of the Payment Methods Report 2021 – Latest Trends in Payment Preferences, a comprehensive overview of the payment methods in scope for 2021, as well as best practices for checkout optimisation and customer conversion by addressing digital transformation, security, and localisation.

About Sheridan Trent

Sheridan Trent has a Master of Arts Degree in Industrial-Organizational Psychology – as a Research Analyst at The Strawhecker Group, she uses her skills to conduct industry surveys and market research, and explore emerging trends in the payment industry

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