Buying something now but paying for it later has always been a tantalizing concept. But the idea is gaining even more steam now thanks to current events; in a world economy virtually crippled by the COVID-19 pandemic, shoppers need to stretch their dollar further than ever before.
Traditionally, people turned to credit cards when they didn’t have the cash on hand to afford a purchase. Today’s consumer is increasingly wary of credit card debt, however, and interest in other avenues has grown. Not surprisingly, a bevy of buy now, pay later (BNPL) services have sprung into action to meet the need.
These financial tools, such as Affirm, Afterpay, Klarna, and Splitit, allow customers to buy something and then pay it off over the course of a few months. Though the economy has been hit hard, BNPL service providers have seen massive growth spurts over the past few months. Customers still need to make purchases, after all. They just don’t always have the available funds in their bank accounts.
This has turned into quite a boon for many small businesses, which are now able to entice customers into making purchases they might not otherwise have contemplated. In fact, many small businesses that have tapped into BNPL services are seeing exciting pockets of new revenue streams in what is otherwise an economy headed towards almost unprecedented recession.
So how do BNPL services fit into a COVID-stricken economy? Could your small business benefit from offering your customers such a service? Let’s take a look at a few key numbers that revolve around this upstart financial sector:
Buy Now, Pay Later Is A Booming Industry
⤠BNPL services are seeing 200%-plus increases during COVID-19
With cash-strapped customers turning to payment deferment methods in order to make purchases during the pandemic, the BNPL sector has achieved record growth throughout 2020.
Per fashion trade journal WWD, Splitit saw record growth during Q2 of 2020. The company processed more than $65 million in merchant sales during that quarter, a number that represents a 176% growth quarter-over-quarter and 260% year-over-year.
Afterpay’s numbers from its latest investor report reflect a similar story. In June of last year, the company had 1.9 million active US customers. By June of this year, the Australian-based firm had boosted its US user base to 5.6 million, an increase of 219%.
Younger Consumers Are Keen On BNPL Services
⤠87% of consumers between the ages of 22 and 44 have expressed interest in BNPL
Because BNPL is such a new concept (for instance, Affirm — one of other older kids on the BNPL block — was only founded in 2012), it’s no surprise that it suits a younger crowd. What is surprising, however, is just how many younger people are open to tapping into payment plans in order to make purchases.
It’s almost ubiquitous: Data compiled by PYMNTS.com in a report on the BNPL industry showed that a whopping 87% of consumers between the ages of 22 and 44 have expressed interest in BNPL.
One potential reason for the acceptance for BNPL is because young people just don’t have credit cards — according to a 2016 survey by Bankrate, only 33% of those between the ages of 18 and 29 are toting plastic. With an increasing distaste toward credit cards shaping the current generation, your small business may be able to appeal to a new and younger audience by tapping into BNPL — potentially even creating loyal customers for life.
BNPL Is All-Around Popular
⤠37.6% of consumers have used a BNPL service
As BNPL is becoming more well-known with consumers, it’s becoming a more popular choice at checkout. In fact, a recent survey conducted by The Ascent (a financial analysis branch of the investment advice site Motley Fool) found that over one-in-three respondents have already used a BNPL service to make a purchase.
That number is only going to keep growing. According to the same survey, 20.8% of consumers first used a BNPL service in 2020 compared to just 7.4% that had used one before 2015. Plus, COVID-19 may increase the demand for BNPL. Per a different poll run by The Ascent, 46% of Americans have had to take out a personal loan to make ends meet during the pandemic.
Big Purchases Are A Hit With BNPL
⤠The average purchase through BNPL is $104
It’s not outrageous to speculate that customers use BNPL services for big purchases. After all, the purpose of BNPL is so that customers can buy items or services they might otherwise not be able to afford at the time of purchase. As such, it makes sense to assume that customers will dip into BNPL on purchases that put big numbers on the till.
This reasoning falls right in line with the data. In an interview with Al Jazeera, Afterpay co-founder Nick Molnar said that customers use his service for primarily high-money buys — the average purchase through Afterpay is over $100. With this in mind, your business may be able to flourish via BNPL services because moving big-ticket items will be easier.
BNPL can also potentially increase average sale amounts. For instance, a 2019 case study released by Klarna highlighted how fitness clothing retailer Gymshark noticed a 33% increase in customer basket size after it added a BNPL option at checkout.
People Want To Avoid Credit Card Interest
⤠39.3% of consumers use BNPL because they don’t want to incur credit card interest
With credit card issuers charging exorbitant interest rates on card balances, it’s not surprising that people are looking at different options when they need to spread purchases over multiple months. For example, credit cards routinely feature interest rates at an average 24.4%Â for those with bad credit (according to the latest rates report by CreditCards.com). Meanwhile, many BNPL services, such as Afterpay or Splitit, feature no interest.
Dipping back into the above-mentioned survey by The Ascent, we find that the number one reason people use BNPL services is to avoid paying interest on credit cards. Using BNPL services to make big purchases is a close second — 38.3% of respondents said they opted into a BNPL service because the purchase wouldn’t otherwise fit their budget.
These numbers echo findings from Afterpay. According to survey results released by the BNPL service, 54% of Americans are scared about taking on too much credit card debt — something BNPL can help avoid.
BNPL Services Create Repeat Customers
⤠65% of BNPL users have made two purchases within six months of each other
Any business needs repeat customers. Customers who come back mean a more consistent revenue, and confirm that you offer products or services customers trust. BNPL services certainly cater to their own repeat customers.
In its latest biannual global fashion and trend report, Afterpay revealed that 65% of its user base made at least two purchases in the past six months. By implementing a BNPL option at checkout, your business may be able to draw from customers comfortable using such services.
Buy Now, Pay Later: The Bottom Line
BNPL is a side of the eCommerce space that’s only going to keep growing. For small businesses that sell online, there’s little downside to offering a BNPL option at checkout. Besides giving your customers a chance to protect their budgets, you may also be able to increase your revenue — something that is all-important in a COVID-19 world.
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