It’s the most wonderful time of the year … or is it? Peak season is make or break if you’re in the retail business. And this year, there are more challenges than ever before. Between inflation and the heavy reliance on credit and discounts, many retailers scramble to keep up. But fear not! In this blog, we’ll look at how buy now pay later (BNPL) programs are helping to keep the holiday season bright.
Inflation & The Holiday Season
Inflation has been rising throughout 2022, and December is no exception. This is bad news for retailers, who already feel the squeeze from higher costs across the supply chain. Products once affordable are now out of reach for many shoppers, who are forced to either cut back on their holiday purchases or turn to credit cards and other forms of debt to finance their shopping. According to the NRF, online and other non-store sales were up 9.5% at $261.6 billion, which fell short of its 2022 forecast of a 10% to 12% growth. While inflation has continued to soar for several months, consumer spending has remained relatively consistent.
What is Buy Now, Pay Later (BNPL)?
We all know the feeling of wanting something we can’t afford. What if there was a way to buy now and pay later? No interest, no fees, and no credit card required. Enter: buy now, pay later.
A BNPL solution allows shoppers to spread the cost of their purchase over time without accruing any interest or fees. This makes it an attractive option for shoppers struggling to keep up with the rising cost of living. BNPL programs are also convenient because they can be used online and in-store.
BNPL emerged in the early 2010s to help consumers finance their purchases without the high-interest rates and fees associated with credit cards. Since then, it has grown increasingly popular, particularly among younger generations. And with the recent pandemic, BNPL solutions have taken off even more. The size of the U.S. market was worth around a few billion dollars in 2019 but is estimated to grow by 1,200% by 2024!
The Escalating Use of Credit Cards and BNPL Programs
The use of credit cards and BNPL programs has been rising recently, but it has exploded during the pandemic. These companies have gone from being relatively unknown to becoming a significant force in consumer credit in just a few short years. And it’s not hard to see why.
For merchants, it drives higher average tickets and reduced cart abandonment. Plus, retailers benefit because people can make purchases even when they don’t immediately have funds available. If played correctly, they may see them return again, which would be a great play toward loyalty.
Why Has BNPL Gotten So Popular With Consumers?
There are a few reasons why BNPL programs have become so popular. First, they allow shoppers to make purchases now and pay later without accruing any interest or fees. This can be especially helpful during economic uncertainty when people try to be more careful with their money.
Second, BNPL programs usually have very low minimum payments, which makes them even more appealing to cash-strapped shoppers. Finally, most BNPL providers offer promotional periods that allow shoppers to delay payments even further. For example, Afterpay—one of the most popular BNPL providers—gives customers the option to pay interest-free for their purchase over four equal installments.
BNPL: A Winner of Black Friday
Thanksgiving and Black Friday may have been great days to be a buy now, pay later service provider. Given the economic pressures many shoppers face right now, BNPL payment options offered a way for consumers to still get the goods they wanted. More telling is that some shoppers are using BNPL for lower-priced goods instead of high-ticket items, with the average order value for BNPL purchases decreasing in the U.S. by 6% on Thanksgiving. Orders using BNPL rose by 78% the week of Nov. 19 to Nov. 25 when compared to the week before, according to Retail Dive. Additionally, overall revenue from BNPL is up 81% during the same period. In other words, people are using buy now, pay later services more than ever to finance their holiday shopping – and they’re doing it at lower price points than in previous years.
Could There Be Repercussions?
The problem with BNPL is that there are consequences if you don’t follow all the rules. However, many providers and their critics are currently concerned about the types of products purchased. In the past, many consumers took out BNPL on high-ticket items. Now, that same money is used to pay for groceries and other essential expenses, leaving a potential for predatory lending if the market is not regulated correctly. While such practices can be considered harmful, on the other side, the diversity and flexibility in BNPL approaches could spell a new era for consumer buying and boost future buying potential.
Nevertheless, for now, it appears that the pressures are manageable. Losses on installment loans are low, and payment rates are high based on corporate filings. It is clear that the ‘pay in four’ BNPL product has found a sustainable niche in the consumer credit market. By providing a more efficient and cost-effective option for consumers, BNPL companies are stealing growth from traditional financial providers. What happens next will only be revealed with time.
Only Time Will Tell
The holiday season is always challenging for retailers, but there are more challenges this year than ever. Inflation puts pressure on tight margins, and shoppers increasingly turn to credit cards and other forms of debt to finance their purchases. This is where BNPL programs come in. While BNPL programs may provide a much-needed boost to retail sales during peak season, there could be long-term consequences for retailers and shoppers alike if debt levels continue to rise. However, by allowing shoppers to spread the cost of their purchase over time without accruing any interest or fees, BNPL programs are helping to keep the holidays bright for retailers and shoppers alike. Only time will tell how this will all play out, but one thing is for sure: we’re in for an interesting peak season!
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