What Is BNPL and How Does It Work?
Buy now, pay later (BNPL) is an alternative payment method that allows consumers to pay in installments over time. It divides a purchase price into multiple equal payments (usually four), with the first payment typically due by the consumer at checkout. The remaining installments are automatically withdrawn from the consumer’s preferred payment method on predetermined dates until the purchase is paid in full.
Why are Consumers Attracted to BNPL?
The idea of paying for a purchase over time is not new. Installment buying and layaway programs have existed in the US for the better part of a century. Around 2012, the concept of BNPL went digital, quickly becoming popular with tech-savvy consumers. Since then, the global adoption of BNPL has continued to increase. In 2022, BNPL payment options in the US are forecasted to reach over $82 billion — an annual increase of 66.5%. There are three primary reasons why:
Rising Consumer Spending among Millenials and Zoomers
From 2019 to 2021, Gen Z shoppers in the US who opted for BNPL increased from 6% to 36%. During that same period, the use of BNPL by Millennials in the US more than doubled, while usage by Gen Xers saw more than three times growth.
International Supply Chain Disruptions
Supply chain shortages in the second half of 2021 also propelled adoption, as consumers were encouraged to shop early for the holiday season. BNPL programs made that possible for the 61% of Americans living paycheck-to-paycheck in 2021. As a direct result, downloads of the top BNPL apps climbed to 3.47 million in December — a 20% year-over-year increase.
The Fear of Debt
For consumers, buy now, pay later is a welcome alternative to paying with credit cards, as many are cautious of accruing that form of debt. Paying off a purchase in a series of interest-free installments is more appealing.
How Merchants Benefit from Buy Now, Pay Later
The key advantages of accepting BNPL payments for merchants include:
Expanded Customer Base
By making larger purchases more affordable through BNPL, merchants can expand their customer base to include buyers who would typically not have the ability to pay.
Read more about the author, Mark Wheeler.
