- BNPL has gained traction in the retail and financial industry in the last years, thanks to its flexibility and extreme ease of access.
- Among the main advantages of BNPL, low to no interest plans and the opportunity to budget effectively are attracting more and more users.
- The generations using BNPL the most are Millennials (56%) and Gen Z (49%) and the sector that scores the most BNPL banking purchases is the fashion industry.
Convenient, affordable and quick, Buy Now Pay Later (BNPL) has taken the retail industry by storm in recent years. It has also made its way into the banking industry, providing a new way for consumers to manage their finances. Let’s explore how BNPL banking is revolutionizing the financial industry and the way consumers in the world manage their finances.
What is BNPL
Buy now, pay later is a type of short-term financing that allows consumers to make purchases and pay for them at a future date. BNPL is generally structured like an installment plan money lending process that involves consumers, financiers, and merchants. Most payment plans with standard timelines are usually free of interest when using BNPL, whilst postponing payments can incur extra costs.
Just yesterday, Apple launched its own Buy Now Pay Later service in the US, letting customers split payments for purchases into 4 installments over 6 weeks and apply for a loan in the Wallet app with no fees or interest. Considering the popularity of BNPL banking, being aware of the advantages of this practice is especially important for traditional financial institutions and any fintechs looking to meet the latest consumer needs.
The advantages of BNPL banking
Instead of being limited to purchases from a single retailer, BNPL banking allows consumers to make purchases from multiple retailers and pay through their banking app. This provides them with greater flexibility, allowing them to distribute the cost of purchases over a longer period of time. Here are the 3 main advantages of using BNPL banking:
1. Ability to avoid high-interest credit card debt. With traditional credit cards, people can easily accumulate debt with high-interest rates that can be hard to pay off. Buy Now Pay Later banking offers a more manageable alternative, allowing consumers to pay for purchases over time with a fixed interest rate. This can also help consumers avoid the debt issues associated with high-interest credit cards.
2. Opportunity to budget more effectively. By spreading out the cost of purchases over a longer period of time, consumers can better plan their finances and avoid overspending. Additionally, many BNPL banking apps provide budgeting tools and notifications to help consumers stay on top of their finances.
3. New ways for retailers to attract customers and boost sales. By partnering with Buy Now Pay Later banking providers, retailers can offer their customers more flexible payment options, which can lead to increased sales and customer loyalty.
US Millennials declared using BNPL services.
global consumers will resort to BNPL for future medium-sized purchases.
US Gen Z declared using BNPL services.
A popular practice across generations
Many customers are ready to expand the purchases they make with Buy Now pay Later. A recent BNPL Deloitte survey found that 42% were interested in using it for future medium-sized purchases – 37% for large purchases. Customers gravitated to funding of vacations, healthcare procedures, boat or car purchases, and home improvements. To understand the common needs and nuanced behaviors of BNPL users, Deloitte also engaged with more than 600 customers via surveys and ethnographic conversations, surfacing 4 key customer segments:
- Fashion lovers – The largest and youngest cohort of BNPL consumers, commonly leveraging flexible repayment to purchase latest fashion trends.
- Social recreationists – Active Gen Z and Millennials, looking for affordable deals to finance their social activities and hobbies.
- Conscious families – Younger families seeking reliable repayment options to finance both necessary essentials and communal experiences.
- Deal chasers – The oldest cohort of Buy Now pay Later shoppers, looking for the best bargains. 75% of this group prefers familiar brands, taking special interest in loyalty programs.
Mostly favoured by Millennials and Gen Z
According to the Statista Consumer Insights, U.S. Millennials stand out as the “buy now, pay later” generation, with 56% of those born between 1980 and 1994 saying they used online payment schemes in several installments and interest free.
Paypal was the most used buy now pay later service among the generation, followed by Afterpay, Klarna and Affirm. In comparison, just 36% of Gen X (born between 1965 and 1979) and 49% of Gen Z (born after 1995) said they used BNPL banking. Participation was lowest among Baby Boomers (born 1946-1964) at just 26%.
BNPL banking capabilities with Strands’ Engager
Payments innovation and financial wellness is something we deeply care about at Strands, especially through challenging economic times.
With Strands PFM and Engager solutions, financial institutions can seamlessly integrate BNPL capabilities into their banking apps, and leverage hyper-personalized insights to support retail customers in their financial wellness. The results are a state-of-the-art user journey, improved customer loyalty and great cross-sell opportunities.
Meet the evolving needs of all your customer segments: