Buy Now and Pay Later has become a trend during 2020 and looks like, given the appeal it has for Millennials and Gen Z’s it will be part of the payments industry in the future. Chaim Lever, co-founder of Four, a split-payment platform, shares his thoughts on why especially these two groups prefer to buy now and pay later.
Buy now, pay later. Sounds simple, doesn’t it? The possibility to split your purchase into multiple interest-free installments has been making noise making noise in the e-commerce world, perhaps more than any other trend. And the tech-savvy generations of millennials and Gen Zs are definitely here for it.
|Chaim Lever, Co-founder, Four|
In fact, Gen Zs’ spending through Buy Now, Pay Later has increased by 201% since last year, and that of millennials’ has grown by 86%. So, as industry experts envision a bright future for online sales, retailers have been right to scramble to offer more flexible payment options.
While BNPL potential is yet to be fully explored, why are younger generations likely to crown it one of the favored digital payment options out there?
Avoiding the credit card trap
According to the Fed, millennials have racked up over a trillion dollars, and Gen Zs could be heading toward even more staggering numbers. However, this doesn’t mean that they are necessarily frivolous: Young people have been facing an ongoing affordability crisis, the result of student-loan debts, financial crises, and increased living costs.
Bringing the promise of a debt-free future, there’s no wonder why split payment options have seen such a popularity spike. BNPL solutions simply offer a safer, lower-impact spending tool. Most of the options on the market are interest-free, which is a game-changer for young consumers that are otherwise forced to face an average credit card interest rate of 18.61%.
With widespread financial uncertainty, the pandemic has further diminished the appetite for any exposure or enticement toward more debt. The increase in BNPL over payment cards is now driven partly by consumers’ desire to keep their credit cards’ outstanding balances under control in case they need the funds for any emergencies.
The strive for payment simplicity
The boom in online shopping has brought innovations transforming entire operations and customers claiming the driver’s seat. Being customer-centric emerged as an urgent opportunity for retailers to connect with their audiences – and optimizing the checkout process is one of the key battlegrounds.
Younger shoppers are digitally minded and enjoy mobile shopping. This is particularly true for Gen Zs, often nicknamed the iGeneration, who are constantly looking toward personal finance options that are more innovative and user-friendly that include features such as real-time platforms or simple, one-click payments. Likewise, they desire a checkout that is flexible, fast, and clear to understand. BNPL checks off these boxes, offering a few-step process with installments scheduled automatically and no need for any additional action on the user’s side.
For retailers, ignoring consumer needs will not only get them a frown face – it can actually directly impact their sales. A recent study revealed that payment options are a critical determiner of where people spend their money. Another survey found that consumers which value BNPL options tend to be the most loyal, with 48% of those who prefer the method claiming they wouldn’t purchase from retailers that failed to offer it.
More control and better financial planning
Both millennials and Gen Zs are looking for tools that allow them to navigate their personal finances by themselves, and seamlessly. With BNPL, they can purchase a high-demand product before it sells out, spread out the cost of an item, or buy an item or a bundle at a discounted price immediately – all without a sudden hit to their personal budgets. And as millennials particularly don’t tend to have a solid credit history behind to seek favorable loans, this is a great alternative option.
One of the most common critiques of BNPL is that it could drive irresponsible spending. What many don’t realize is that it’s simply a payment choice like any other. It’s common for people to pay for a coffee with a credit card – even though that doesn’t mean that you can’t pay for it. For many millennials and Gen Zs, BNPL could thus become a bridge between credit and debit cards, bringing them the flexibility they crave, no matter if they’re looking to buy a 3-for-2 lipstick deal or a suit for their next job interview.
Millennials are currently the the biggest spenders, and Gen Zs are stepping up their game as well. These generations seek alternatives to traditional credit solutions, ease of use, and flexibility, which is why split payment options will assume an invaluable role for these younger shoppers.