Digital Transactions Authoritative, insightful and timely information for payments professionals
The craze for point-of-sale installment lending—a trend popularly known as buy now, pay later—has enjoyed a honeymoon among merchants and consumers alike. The option, which lets consumers receive the goods in their cart but pay for them later over a few interest-free installments, came along just as pandemic fears threatened to throttle in-store sales and dampen the boom in e-commerce.
Startups like Affirm and Afterpay, and more established players like PayPal, Square, and Klarna, now offer the service, which could account for $1 trillion in sales by 2025, according to CBInsights—10 to 15 times the estimated current level. It seems it’s all good news for BNPL, as it’s come to be known.
Or is it? A revealing survey released last month indicates there could be a few lumps of coal among the diamonds. First, the good news. The survey, from payments-research firm The Strawhecker Group, found 39% of some 1,500 sampled consumers use BNPL. Of these, 55% are likely to spend more than they do with other payment methods. Most trust their BNPL services and intend to keep relying on them.
So far, so good. But here’s where the clouds start to form. Some 20% of those surveyed expressed a suspicion that a BNPL service would hoodwink them in some way. And most let it be known that an old-fashioned credit or debit card, issued by a bank, is still the “most reliable” payment method. On top of that, non-users in the surveyed group indicated “psychological discomfort, a lack of familiarity, and financial hardship” as reasons for intentionally avoiding BNPL services, according to Strawhecker.
None of this is to say BNPL is somehow at risk of losing its luster any time soon. The concept on which it’s based—layaway plans—is as old as anyone can remember in the retailing world. The attractive twist with BNPL is that, unlike the case with layaway, you get your merchandise upfront. Features like that are proving extremely attractive, making for very high retention rates. Indeed, the report points to a statistic from Afterpay indicating 91% of its sales in the first quarter came from repeat customers.
So how are the negative and the positive views likely to play out, particularly as payment networks and card issuers look to compete with this upstart? After all, sometimes that competition comes in the form of hardball. Capital One made the news in December with its decision to bar its cards from participating in BNPL programs.
As usual, market forces will sort this out. But it’s a pretty good bet that companies like Square and PayPal aren’t likely to have backed a losing proposition.
—John Stewart, Editor, john@digitaltransactions.net
