How small businesses are boosting engagement with buy now, pay later options

As buy now, pay later providers such as Afterpay, Affirm, Klarna, Zip (formerly Quadpay) and Sezzle gain steam among retail giants like Amazon and Walmart, the trend is trickling down to local businesses. Customers will now find a steadily increasing number of small companies are adopting BNPL options.

The trend is not limited to just online shopping. Many businesses are rolling out BNPL for in-store shopping. So, what is driving this BNPL frenzy? 

The rapid-fire adaption of BNPL services reflects the need for small businesses to attract younger, convenience-driven customers — Generation Z and millennials — and stimulate impulse purchases. In the end, it’s about providing convenience for consumers while growing revenue.

How BNPL works

As the name suggests, buy now, pay later options allow consumers to buy a product and pay for them in installments over time. Unlike old-fashioned installment plans for big-ticket items such as appliances and furniture, the modern version of BNPL plans can be used to purchase items priced as low as $10 or $20 or as high as in the thousands. 

In addition to their higher purchase limits, the new BNPL plans sweeten the pot in ways that traditional credit cards and other payment plans can’t. Most assess no late fees, charge low or no interest and don’t require a credit check. Note that terms may vary across providers, however.

7 ways small businesses can benefit from offering BNPL

Attracts younger shoppers: BNPL options help small businesses reach a younger demographic who may not have been able to shop with them before. A growing number of younger generation shoppers, looking for easier and more affordable ways to buy, are turning to BNPL services for purchases. The percentage of U.S. Gen Zers using BNPL has jumped from 6% in 2019 to 36% in 2021. Similarly, millennials’ use of the service has more than doubled since 2019 to 41%, and Gen Xers’ adoption has more than tripled in the same period, according to Cornerstone advisors. 

Expands customer base: In addition to enticing younger and more tech-savvy users, BNPL options have provided access to credit to consumers who previously couldn’t get it, for example due to an insufficient credit history. They can now access zero-interest financing and make purchases and pay later in installments using BNPL. 

Triggers spending: Owing to its convenience and flexibility, BNPL encourages people to spend more. It helps small businesses spur shoppers to open their wallets for impulse purchases that they otherwise may have avoided.

Amplifies sales: Baby boomers are also embracing BNPL options, according to Cornerstone advisors. And overall, consumers are projected to generate a whopping $100 billion in sales using BNPL programs in 2021, up from $24 billion and $20 billion in 2020 and 2019, respectively. 

Affordability: BNPL options allow customers who are already feeling the pinch of an economic downturn to split their payments into interest-free or no-cost installments over a period of time. It enables them to purchase items that are a little out of their budget versus paying on the spot, meaning the same items become more affordable for customers with BNPL, and small businesses witness an increase in the average order value.

More sustainable: Straddling a segment between traditional payment plans, like credit cards and installment plans, the buy now, pay later option is a more sustainable way for consumers to access credit when they need it. Unlike credit cards, the BNPL model relies on customers paying on time and works to create more transparency with structured repayment plans, zero or low interest and no hidden fees. In turn, this helps customers better manage finances without compromising on choice.

Changes customer experience: Traditionally, installment payments were an option at checkout only: that is, at the end of the customer journey. But BNPL programs influence consumers’ choices of products and providers earlier in the journey. That means by offering the BNPL option, small businesses can deliver a more seamless customer journey while also ensuring a steady revenue stream to keep the business afloat.

Consumer advocates not totally sold on BNPL

Despite their advantages, BNPL programs have detractors. Consumer advocates criticize the programs for encouraging consumers to take on debt they might not be able to afford. And for those who are already struggling to pay their bills, BNPL loans may compound the issue.

Takeaway:

While not without controversy, it seems that buy now, pay later options are set to become a permanent fixture on the retail landscape, offering a better alternative to credit cards and traditional installment plans for many consumers.