A notable shift is occurring in consumer spending habits in the United States as more shoppers opt for Buy Now, Pay Later (BNPL) services during key shopping events like Black Friday and Cyber Monday.
Data indicates a significant increase in the use of BNPL options among U.S. consumers, with a 62% surge in order volumes reported by a leading BNPL firm during Cyber Week. This period marked a substantial test of BNPL’s popularity, as consumers took advantage of staggered payment plans rather than traditional credit models.
In 2020, BNPL comprised merely 2% of e-commerce sales. However, recent data from Affirm reveals that this figure has escalated to over 7%. Other companies have also recorded noticeable increases, with Klarna observing a 26% rise in orders and Afterpay noting a 10% increase during the same period.
Adobe reported that BNPL usage on Cyber Monday reached new heights, comprising nearly $1 billion of transactions. Notably, three-quarters of these transactions occurred via mobile devices, indicating a trend towards mobile-friendly payment solutions. Of the total $131.5 billion in online spending tracked during the month leading up to Cyber Monday, BNPL accounted for $9.4 billion.
The growth of BNPL is fueled by several factors, notably the financial strain on U.S. household budgets due to inflation. Retail analysts point out that consumers are increasingly relying on debt to manage their expenses, with BNPL emerging as one of the fastest-growing segments. Unlike traditional credit card agreements that accrue interest, BNPL offers a cost-effective way to spread payments, thereby enticing consumers and driving higher sales for retailers.
BNPL services appeal to younger shoppers and those with limited access to traditional credit. With major retailers integrating BNPL into their checkout processes, consumers are more inclined to choose this option. BNPL’s accessibility and ability to drive conversion rates make it attractive to online retailers.
Affirm, for example, has expanded partnerships with giants like Amazon and Walmart, facilitating greater adoption among consumers. Klarna has also doubled its U.S. retail partnerships, offering integrations with popular services like Apple Pay and Google Pay.
The impact of BNPL services is reflected in their repeat customer rates. A third of users during Cyber Week were returning customers, and Affirm reports a repeat-customer rate exceeding 90%. As more consumers become familiar with BNPL, its use is expected to grow, particularly as Gen Z enters the consumer market with increased purchasing power.
Despite its growth, BNPL is not without challenges. Some users, particularly among Gen Z, find themselves struggling to meet payment obligations, leading to increased debt. Regulatory bodies are working to establish guidelines to protect consumers while supporting the broader lending environment.
The outlook for BNPL remains optimistic. As younger demographics begin to purchase more high-value items, BNPL services could capture a larger share of the payment landscape, similar to its success in other markets like Australia and Sweden.
The increasing popularity of BNPL services underscores a shift in consumer behavior towards more flexible payment options. As market adoption grows, both consumers and retailers stand to benefit from this evolving financial landscape. However, awareness of potential risks and regulatory oversight remains crucial to ensure sustainable growth in the BNPL sector.
Source: Businessinsider
