Gone are the days of retailers asking, “cash or credit?” Consumers are increasingly looking to use new payment solutions, such as buy now, pay later (BNPL), for nearly every purchase they make — large and small.
PayPal Vice President of Global Pay Later Products Greg Lisiewski said in a PYMNTS TV interview that the pandemic has accelerated the adoption of BNPL among both consumers and businesses.
“On the merchant side, we’ve seen it really penetrate most verticals — not as widely adopted yet as in fashion and apparel, but it’s getting there,” Lisiewski said. “[Offering BNPL] is table stakes.”
Over two-thirds of users outside of millennials and Generation Z use PayPal’s Pay in 4 product, and the financing option has moved beyond apparel and beauty retailers into other categories, such as automotive and travel. PayPal was among the first BNPL providers when it acquired “Bill Me Later,” although that was primarily targeted at larger purchases. Lisiewski estimated that about half of eCommerce is now covered in some way with a BNPL solution.
The Non-Retail Case for BNPL
Anthony Rodio, president and CEO of mobile auto repair provider YourMechanic, said BNPL is a “humongously important part of our offer,” considering the average car in the U.S. is over 11 years old and the average car serviced by YourMechanic is about 12 years old.
“A large chunk of our customers don’t have $300 extra sitting around, but they need their cars,” Rodio said. “It’s the only way they get to their livelihood, whatever that job may be. They need that vehicle, and they may not be getting paid for a week or two weeks. So, buy now, pay later enables them to keep living their life and working.”
PYMNTS research, conducted in collaboration with PayPal, found that 32% of BNPL users said they couldn’t afford a certain purchase without it, and nearly 39% said they used it because they knew what the monthly payment would be and for how long. Approximately 29 million U.S. adults have used BNPL in the last 12 months.
Separate research has also found that over 60% of millennials in the U.S. are living paycheck to paycheck as they begin to make larger expenditures for the first time, whether that means purchasing a car, taking out a mortgage or preparing financially to have children.
Read more: 43M US Millennials Report Living Paycheck to Paycheck
About 30% of YourMechanic customers use BNPL to finance car repairs, which Rodio said initially stunned the company because the average order value was less than $200.
“We’re dealing with people without a lot of disposable income, and they need help across the whole plethora of anything,” Rodio told PYMNTS.
Sam Argyle, managing director of travel booking platform Alternative Airlines, said BNPL is also quickly expanding within his industry, with people now expecting the payment option to be available when booking a trip. Alternative Airlines offers over 40 payment methods, including credit cards, eWallets and cryptocurrency, in order to meet the range of purchase sizes in the travel industry — from a $550 ticket, which is good for a biweekly installment option, to a $2,000 trip to Hawaii, which may fit better with a six-month or 12-month option.
Argyle said the company has seen “huge traction” for BNPL when it comes to unbudgeted, unplanned trips.
“Typically, you may have saved up for your two weeks holiday somewhere, but the last-minute unplanned trips, being able to finance that over a period of time, really resonates with customers,” he said. “And working with many of the leading buy now, pay later offerings on our site gives real credibility and confidence for customers to book through us.”
Aligning Expenditures With Cash Flow
As use of BNPL has spread across the connected economy, one of the great benefits, Lisiewski said, is that “it’s really a democratized solution for merchants of all sizes,” beyond where traditional point-of-sale (POS) finance lives. Previously, financing options were limited to niche, high-margin verticals such as furniture and big-box stores, which did deals with banks and created private label cards with financing at the center.
“But now you can be the Main Street hardware store that survived all the consolidation in retail and now offer buy now, pay later solutions, where before your customers had to go to Home Depot or Lowe’s if financing was important to the purchase,” Lisiewski said. “Think of bridal shops — any smaller, regional business is really in a great position.”
BNPL may also start to pop up in non-discretionary categories beyond auto repair, Lisiewski added, pointing specifically to the possibility of smoothing out rent payments.
“Anything that gets back to aligning expenditure with cash flow I think is good for consumers,” he said. “And you’ll start to see these solutions penetrate other non-retail verticals but big spend categories.”
Rodio said customers are also seeing the benefit of BNPL as it becomes more ubiquitous.
“Consumers understand it because they feel the pain of not having the ability to have an unexpected spend arise, and they know they need it,” he said.
The challenge, he added, is convincing service providers to adopt BNPL. Plumbers, electricians and other tradespeople often work primarily with cash because they hire labor based on the work, which makes it difficult to bring in a financing solution.
“It’s going to be partly education in a services marketplace-type mentality, the supply side of the benefits of extra demand,” Rodio said. “I know it’s coming, but they’ve been a little reluctant.”
The Next Frontier
Lisiewski said he expects BNPL use to continue to grow, although consolidation within the space is all but guaranteed “because there’s just not enough room.” In early August, for example, Square agreed to acquire Afterpay for $29 billion.
“I think if we fast-forward 18 to 24 months, the category will continue to grow,” he said. “I think there’ll just be fewer players providing solutions to cover all sorts of use cases. And who knows? Maybe someone we haven’t heard of yet will find a new edge in a different use case.”
Argyle said as BNPL grows, though, it’s important to find the right balance between responsible lending and approval rates. As a merchant, Alternative Airlines wants to see as strong approval rates as possible, “but we are a big believer that responsible lending and the message around giving it to those that can repay it,” he said.
“It’s just that constant trade-off between the two because we need to see strong approval rates for sales, but we also want to see repeat business from customers,” Argyle said. “And therefore, responsible lending needs to happen as well.”
Gone are the times of outlets asking, “money or credit score?” Shoppers are more and more wanting to make use of new fee options, equivalent to purchase now, pay later (BNPL), for almost each buy they make — massive and small.
PayPal Vice President of International Pay Later Merchandise Greg Lisiewski mentioned in a PYMNTS TV interview that the pandemic has accelerated the adoption of BNPL amongst each shoppers and companies.
“On the service provider aspect, we’ve seen it actually penetrate most verticals — not as extensively adopted but as in trend and attire, but it surely’s getting there,” Lisiewski mentioned. “[Offering BNPL] is desk stakes.”
Over two-thirds of customers outdoors of millennials and Technology Z use PayPal’s Pay in 4 product, and the financing possibility has moved past attire and wonder retailers into different classes, equivalent to automotive and journey. PayPal was among the many first BNPL suppliers when it acquired “Invoice Me Later,” though that was primarily focused at bigger purchases. Lisiewski estimated that about half of eCommerce is now lined indirectly with a BNPL answer.
The Non-Retail Case for BNPL
Anthony Rodio, president and CEO of cellular auto restore supplier YourMechanic, mentioned BNPL is a “humongously vital a part of our provide,” contemplating the typical automobile within the U.S. is over 11 years outdated and the typical automobile serviced by YourMechanic is about 12 years outdated.
“A big chunk of our prospects don’t have $300 additional sitting round, however they want their automobiles,” Rodio mentioned. “It’s the one means they get to their livelihood, no matter that job could also be. They want that automobile, they usually is probably not getting paid for per week or two weeks. So, purchase now, pay later permits them to maintain residing their life and dealing.”
PYMNTS analysis, carried out in collaboration with PayPal, discovered that 32% of BNPL customers mentioned they couldn’t afford a sure buy with out it, and almost 39% mentioned they used it as a result of they knew what the month-to-month fee can be and for a way lengthy. Roughly 29 million U.S. adults have used BNPL within the final 12 months.
Separate analysis has additionally discovered that over 60% of millennials within the U.S. live paycheck to paycheck as they start to make bigger expenditures for the primary time, whether or not meaning buying a automobile, taking out a mortgage or making ready financially to have youngsters.
Learn extra: 43M US Millennials Report Residing Paycheck to Paycheck
About 30% of YourMechanic prospects use BNPL to finance automobile repairs, which Rodio mentioned initially surprised the corporate as a result of the typical order worth was lower than $200.
“We’re coping with folks with out numerous disposable earnings, they usually need assistance throughout the entire plethora of something,” Rodio instructed PYMNTS.
Sam Argyle, managing director of journey reserving platform Different Airways, mentioned BNPL can be shortly increasing inside his trade, with folks now anticipating the fee choice to be accessible when reserving a visit. Different Airways presents over 40 fee strategies, together with bank cards, eWallets and cryptocurrency, with a view to meet the vary of buy sizes within the journey trade — from a $550 ticket, which is sweet for a biweekly installment possibility, to a $2,000 journey to Hawaii, which can match higher with a six-month or 12-month possibility.
Argyle mentioned the corporate has seen “big traction” for BNPL on the subject of unbudgeted, unplanned journeys.
“Usually, you’ll have saved up to your two weeks vacation someplace, however the last-minute unplanned journeys, with the ability to finance that over a time frame, actually resonates with prospects,” he mentioned. “And dealing with lots of the main purchase now, pay later choices on our web site provides actual credibility and confidence for patrons to e book by means of us.”
Aligning Expenditures With Money Stream
As use of BNPL has unfold throughout the related economic system, one of many nice advantages, Lisiewski mentioned, is that “it’s actually a democratized answer for retailers of all sizes,” past the place conventional point-of-sale (POS) finance lives. Beforehand, financing choices have been restricted to area of interest, high-margin verticals equivalent to furnishings and big-box shops, which did offers with banks and created personal label playing cards with financing on the heart.
“However now you could be the Fundamental Avenue ironmongery shop that survived all of the consolidation in retail and now provide purchase now, pay later options, the place earlier than your prospects needed to go to House Depot or Lowe’s if financing was vital to the acquisition,” Lisiewski mentioned. “Consider bridal outlets — any smaller, regional enterprise is actually in an excellent place.”
BNPL might also begin to pop up in non-discretionary classes past auto restore, Lisiewski added, pointing particularly to the potential for smoothing out hire funds.
“Something that will get again to aligning expenditure with money circulation I believe is sweet for shoppers,” he mentioned. “And also you’ll begin to see these options penetrate different non-retail verticals however huge spend classes.”
Rodio mentioned prospects are additionally seeing the advantage of BNPL because it turns into extra ubiquitous.
“Shoppers perceive it as a result of they really feel the ache of not being able to have an sudden spend come up, they usually know they want it,” he mentioned.
The problem, he added, is convincing service suppliers to undertake BNPL. Plumbers, electricians and different tradespeople typically work primarily with money as a result of they rent labor primarily based on the work, which makes it troublesome to herald a financing answer.
“It’s going to be partly training in a companies marketplace-type mentality, the provision aspect of the advantages of additional demand,” Rodio mentioned. “I do know it’s coming, however they’ve been a bit of reluctant.”
The Subsequent Frontier
Lisiewski mentioned he expects BNPL use to proceed to develop, though consolidation inside the house is all however assured “as a result of there’s simply not sufficient room.” In early August, for instance, Sq. agreed to amass Afterpay for $29 billion.
“I believe if we fast-forward 18 to 24 months, the class will proceed to develop,” he mentioned. “I believe there’ll simply be fewer gamers offering options to cowl all types of use circumstances. And who is aware of? Possibly somebody we haven’t heard of but will discover a new edge in a distinct use case.”
Argyle mentioned as BNPL grows, although, it’s vital to search out the proper steadiness between accountable lending and approval charges. As a service provider, Different Airways needs to see as robust approval charges as attainable, “however we’re an enormous believer that accountable lending and the message round giving it to people who can repay it,” he mentioned.
“It’s simply that fixed trade-off between the 2 as a result of we have to see robust approval charges for gross sales, however we additionally need to see repeat enterprise from prospects,” Argyle mentioned. “And subsequently, accountable lending must occur as properly.”