The Future of Payments is Here: How Buy Now, Pay Later Can Add Value for Both Consumers and Merchants
Bradley Leimer
Head of Fintech Partnerships and Open Innovation, SMBC (smbcgroup.com) Author, Speaker, Advisor
The Future of Payments is Here: How Buy Now, Pay Later Can Add Value for Both Consumers and Merchants
By Theodora Lau and Bradley Leimer of Unconventional Ventures??
This is the first of two articles by Unconventional Ventures in partnership with PayPal.?
Consumer behavior changed dramatically during the pandemic. From touch-free payments to delivery and pick-up alternatives, consumers are embracing new products and services and new ways to make purchases. While this has been partly born out of necessity due to safety and health concerns, it is also a reflection of the ongoing digital transformation that began even before the pandemic. The acceleration of e-commerce adoption has also changed the dynamic between consumer and merchant.
With the steady increase in the use of digital wallets, other non-bank fintech applications , and associated innovations within digital payments, consumers are experiencing a rapidly evolving checkout experience, changes in ways they can use credit, and how they track and manage their spending.??
The Growth of Buy Now, Pay Later??
This extended period of economic uncertainty has brought about changes to workplace environments and everyday consumption, as well as economic fallout across geography. Beyond pandemic-related health concerns, according to PwC, over 78% of consumers said they have been economically affected by the crisis, and 38% of U.S. consumers had their employment affected by COVID-19. It’s no wonder more consumers have indicated that they are more anxious about certain personal financial challenges.?
How can consumers and merchants navigate this new normal, in a way that benefits both parties? Payments innovation is the place to look. A new option, Buy Now, Pay Later (BNPL) has really taken off in recent years. In the U.S. alone, the BNPL market is expected to grow 41.7% on an annual basis, reaching over $126 million in 2021. This checkout trend leverages flexibility and convenience for the consumer while promising greater loyalty for merchants in the long term.?
Broadly speaking, BNPL provides consumers with the ability to manage their spending while softening the impact of larger purchases. While a study by Morning Consult showed that U.S. consumers who used a BNPL service were more likely to report income volatility than those who used credit cards, leveraging BNPL can potentially help consumers avoid interest charges, and improve cash flow while paying over time.?
During times of greater financial duress, the flexibility of payment associated with BNPL is especially attractive to merchants, who seek to offer more customer-friendly solutions.?
It is also important to message to shoppers earlier in the journey –– not just at checkout. According to PayPal’s Q3 2021 earnings release , approximately 950,000 merchants have customers who use our Buy Now, Pay Later capabilities, and 65,000 have positioned Buy Now, Pay Later upstream on their product pages. This is a trend that will only continue to grow. And merchants are taking notice.?
How Buy Now, Pay Later paves the way for deeper loyalty?
According to a Forrester and PayPal survey , younger consumers said the ability to borrow without interest for a period of time was the most important factor in choosing the BNPL option at checkout. A separate survey by PayPal and Netfluential indicates that consumers liked the convenience and consistent option of using Buy Now, Pay Later across merchants as well, as 28% of consumers ages 18-39 said they were more likely to shop at a merchant again that offered BNPL options. Further, 48% said Buy Now, Pay Later will allow them to spend at least 10% to 20% more than they would using a credit card, according to CNBC . The potential for increased conversion rates, coupled with possible higher average order value (AOV), make offering BNPL an attractive option for merchants.?
Transparency is a key to retaining customer loyalty and brand trust. Consumers appreciate the full disclosure of costs associated with their purchases. Explaining to consumers how BNPL works — at or before the checkout process — is critical as merchants partner with providers and roll out these services. This is why partnering with the right provider is a critical decision for each merchant.
How PayPal’s Pay in 4 bundles consumer and merchant value
BNPL is not a new concept. Through their acquisition of Bill Me Later back in 2008, PayPal first started offering users credit lines with special financing options.?
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More recently, usage of Pay in 4 has gained momentum ever since PayPal introduced their BNPL solution. According to PayPal’s latest earnings call , since the launch of buy now, pay later, the company has processed approximately $5.4 billion in total payments volume (TPV), with $2 billion of that TPV in Q3 2021 alone. Over 9.5 million consumers have transacted more than 33 million times with the buy now, pay later products.?
More importantly, PayPal has eliminated consumer late fees for buy now, pay later purchases starting in October 2021 — a move that helps to make its product more attractive to consumers. It turns out that combining what consumers desire (flexibility and control) with a brand they already use and trust (PayPal), with something they want or need, can create a win-win for merchants that offer payment options like PayPal Pay in 4.?
Presented within a unified digital wallet that provides access to payments, credit, and a growing merchant network of products and services, PayPal’s Pay in 4 service is an integral part of an evolving financial services business model.?
Learn more about how merchants can offer Pay in 4 from PayPal.??
Additional Resources?
6 ways the pandemic is changing consumer shopping habits , PayPal, December 2020?
How ‘Buy Now, Pay Later’ Consumers Differ From Credit Card Users , Morning Consult, July 27, 2021
Pay In 4, PayPal’s Buy-Now-Pay-Later Product, Resonates With Shoppers , Forbes, June 8, 2021
Digital payments: Achieving the next phase of consumer engagement , McKinsey, November 25, 2020
Nearly 90% of Americans now use fintech—with boomers the fastest-growing demo , Fortune, October 12, 2021
5 Ways PayPal Pay Later is Unique , PayPal (YouTube video)?
About Unconventional Ventures
Unconventional Ventures helps drive innovation to improve systematic financial wellness. We connect founders to funders, provide mentorship to entrepreneurs, strategic advisory services to a broad set of corporates, and broaden opportunities for diversity within the ecosystem. Our belief is that anyone with great ideas should have a chance to succeed and every voice should be heard. We work with financial institutions, fintech startups, technology firms, and corporates working within financial services and tangential verticals. Visit unconventionalventures.com to learn more.
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Founder / CEO at Kivalia & Pariveda
2 年Hi Bradley, Might we better understand the model here - from what I gather, the BNPL model works with he retailer discounting the purchase price by about 4% or so and the financial intermediary (BNPL company) earning the spread over the ensuing 2-3 months. Is that correct? I would assume that the BNPL companies then retain liability for defaults on payments, but would like to confirm. Let's say an individual uses BNPL on a $100 purchase. Retailer discounts item to $96 for the BNPL company who then collects 1/3rd ($33.33) from user initially, then 1/3 in one month, and last 1/3 in 2nd month. Where does the credit liability reside...ie) how do BNPL companies ensure they get 2nd/3rd payments and are they on the hook for any defaults? Are the BNPL companies tying in directly to the consumer's bank account and drawing money out (pull), or are they waiting on consumers to push payments 2 and 3 to them? Thanks - great article!
Director @Conyers
2 年Excellent.
?? Fintech Trailblazer, Startup Mentor, Revenue Jedi, and Payments Pioneer on a Mission! ??
2 年Good read, but I do not agree with the title. This is not the future nor had ever been the future of payments. The future is cloud digital payments on a central global currency that is tied to the persona (not a device or card)
Head of Fintech Partnerships and Open Innovation, SMBC (smbcgroup.com) Author, Speaker, Advisor
2 年Might be of interest Carlos Selonke Paul Loberman Deepa Pardasani Stessa Cohen Arunkumar Krishnakumar Richard Turrin James Lloyd Jason Mikula Alex Johnson Alex Jimenez Alex Sion JAY PALTER Vanessa Colella Syed Musheer Ahmed Dave Girouard Jeremy Balkin Nick Thomas Xavier Gomez Scott Loftesness Malik Khan Kotadia
Helping you create passive income to leave the 9-5 grind - Loving My Side Hustle, Author
2 年Thank you for this very well-written article Bradley. I think we have a problem of people being pushed and cajoled into greater consumerism at a time when many people are struggling financially due to systemic failures of the economy to protect workers & regulate monopolies and large employer's business practices regarding decades of low wages, and lack of equality regarding race, gender and other areas of diversity & inclusivity. I think pushing more borrowing while simultaneously saying the path to freedom is "financial responsibility", budgeting and financial literacy is not a good thing for society and the greater good especially knowing that approximately half of existing credit card users fail to pay their charges on time already. BNPL may work very well for the half of consumers who habitually pay charges on time each month, but become just another way to fall further behind and have further credit score issues for the rest. Giving people more ways to miss payments and get dinged by credit reporting agencies, more ways to go into debt is how banking proves the saying "when all you have is a hammer, every problem looks like a nail". Probably the more responsible service would be a "Conscience & Responsibility" service that asks consumers each purchase "Are you sure you need this now and can afford it?" or "This product has a 97% rate of ending up in a low-income country's landfills adding to our climate crisis, would you like a recommendation of a more sustainable option?" or "this apparel was produced by workers earning $3 an hour, would you like a recommendation for a more worker-friendly version of this product?". As a business person, I understand the desire to do everything possible to reduce or eliminate friction in consumer purchases. If we could create a system that lets people buy things from us by just pointing at things they see online or around town or just thinking "I wish I had xyz" I am sure there'd be a new movement to make that happen by the business and banking community. But just because we can do something doesn't mean we should. I think we should look at why especially young people need what we used to call layaway plans or credit to make everyday purchases and work towards new norms and regulations to broaden the economic access to wealth and growth such as building millions of affordable low-cost housing options, making four-year college tuition-free as it is in every nation America competes, canceling existing student debt which is something President Biden said he wanted to do at least up to $10,000 to start and raising the minimum wage to a truly thriving wage after decades of it being a starvation wage.