The Rise of Buy Now, Pay Later: What You Need To Know


Customer payment plans aren’t what they used to be. 

With inflation on the rise and a recession looming, installment buying has expanded beyond department store items like appliances and furniture. In the digital era, it’s called Buy Now, Pay Later (BNPL). And according to Wunderkind’s 2022 Consumer Insights Report, 48.8% of respondents said they planned to take advantage of BNPL this holiday season.

But as a growing number of retailers embrace the new scheme — not only to drive digital traffic, but to meet consumer concerns around spending — the same factors that made BNPL a safe bet during the pandemic may not work so well for retailers getting started now.

Interest rates are up, and given the surplus of BNPL providers on the market, it may feel overwhelming. Here’s what retailers need to know about buy now, pay later.

Younger audiences may be more receptive to BNPL

A recent survey found that Gen Z plans to leverage BNPL this holiday season more than other cohorts: Almost half (48%) of Gen Z respondents will use BNPL to pay for holiday purchases, followed closely by millennials (47%), Gen X (40%), and finally, baby boomers (14%).

You don’t need a fancy graph to spot the pattern: The younger the consumer, the more likely they are to consider BNPL. For Gen Z and millennials, their willingness likely stems from greater trust in technology. For Gen Z consumers especially, cash constraints are a big factor.

This doesn’t mean baby boomers are unreachable, but it does mean retailers must market BNPL in ways that resonate and build trust with consumers who may be less trusting of fintech or less inclined to finance items they’re unable to purchase outright.

Buy now, pay later is largely unregulated…with credit implications

One of the great promises of BNPL is that it enables consumers who lack credit history to finance without a traditional credit provider. 

In a perfect world, that means even the most financially underserved consumers can safely boost their buying power through access to lending. In reality, this access poses some risks and challenges for consumers and lenders alike.

      1. Low barriers to entry demand transparency and education.

Consumers who lack credit history typically lack financial literacy too. This raises the stakes for any business offering BNPL to potential customers. Given that underserved or “under-banked” consumers are more likely to default or agree to unfair lending terms, responsible brands must find the balance between providing transparency and keeping costs low.

      2. Credit checks? That depends on the provider.

As members of a mostly unregulated space, BNPL providers aren’t required to run preliminary credit checks or report consumer loans to credit institutions — at least not yet. Instead, they might add late fees each month, freeze a customer’s account, or eventually sell the debt to a debt collector. If credit checks eventually become a requirement, BNPL will appeal to fewer consumers.

      3. Market fluctuations really matter.

The pandemic created the perfect conditions for BNPL to thrive: economic uncertainty, high unemployment, and low interest rates. But as the number of BNPL providers continues to grow, rising interest rates make the option less viable for businesses. With inflation high, BNPL could significantly benefit consumers while negatively impacting merchants and lenders.

Staggered payments = More revenue opportunities

For brands that get it right, the rewards of BNPL greatly outweigh the risks. According to HBR, BNPL helps retailers grow sales in three ways:

1. Conversion boost

A 2021 market research survey of eCommerce customers made several important findings. First, most shoppers decide how they’re going to pay before they check out. Second, offering BNPL earlier in the buying journey can influence their decision to purchase. Third, customers paying with BNPL were up to 3x more likely to complete a purchase after browsing.

2. Larger average cart size

The same survey found that consumers who use BNPL may be more likely to purchase big-ticket items that increase average cart size, with the most common purchase categories including clothing, shoes, electronics, and appliances. For example, after adding a BNPL option in the fall of 2020, luggage company Samsonite saw a 25% increase in average order value in 2021.

3. Fewer abandoned transactions

BNPL has become so ubiquitous that some customers have come to expect it. Of the five countries surveyed by TRC, at least half of BNPL users in each country said they’d abandon a purchase if BNPL wasn’t an option. In the United States, an astounding 66% of consumers reported they’d abandon a purchase.

For long-term success, communicate early and often

Buy now, pay later is everywhere — and it may seem like the magic key to unlocking tons of untapped sales. But a brand’s success with BNPL also depends on its target audience and how effectively the brand markets the option.

If your team plans to adopt BNPL during the recession, we recommend supreme transparency. Let people know exactly what to expect, whether they have current credit card debt or just need help managing their spending as the economy fluctuates.