Buy-Now-Pay-Later Comes of Age
BNPL payment methods saw a surge in usage this past holiday season. Almost as if they are competing with traditional credit cards as preferred payment methods — especially for big ticket purchases.
Amid inflationary pressures and shrinking budgets, U.S. Shoppers used alternate payment options like Buy Now Pay Later to finance purchases. According to Salesforce, the volume of orders with BNPL as the payment method increased 5% YoY. However, the average order value for U.S. BNPL transactions decreased by 5%. So, this challenges the previous notion that alternate payment options were best suited for luxury or high-priced items. While that may still be true, it seems like the threshold of items that were financed, dropped a bit.
Adobe said that BNPL orders increased by 85% during Cyber Week compared to the prior week. And revenue from it increased by 88%.
BNPL service provider AfterPay saw transactions rise by 120% compared to before the holidays.
Data from BigCommerce was directionally aligned — they report an increase of 25% in BNPL usage during CyberWeek. Order volumes were up 33% YoY. This implies that order value was down, which in turn, aligns with Salesforce’s findings as well.
Salesforce’s Holiday Insights Hub allows us to go deeper into this data. Among all alternative payment methods though, Apple Pay has been the rising star. It has seen 74% increase in usage YoY, while claiming a 7% share of all payment methods. Other notable observations hidden in the data are:
- There were some regional differences in the adoption. Data from ANZ shoppers showed the largest share on BNPL methods at 16%.
- Active Wear & Luxury Apparel were categories with the highest growth in usage versus last year: 31% and 21% respectively. It seems like BNPL is a no-brainer for Apparel brands & retailers.
- Interestingly, the Home & Furniture vertical saw a drop in usage by -13%. This is interesting because this vertical is associated with high-price and high-consideration purchases. In fact, this segment saw an 8% increase in average selling price, which have made even more sense to see a higher BNPL usage. But that wasn’t the case.
On a related note, even though BNPL accounted for 16% of the payment methods in the ANZ region, its YoY share dropped by 16%. This could imply that 15% is the magic number that brands & retailers can look for. As in, given the current demographic and economic trends, 15% could be the ceiling for BNPL’s adoption share in general.
One of the selling points for BNPL is that its payment options can be more flexible than credit cards. However, the main downside is that makes it easy to overspend — a risk that may affect the consumer as well as the service provider (bad loans and defaults). This should bring some cheer to an other gloomy market conditions for BNPL providers (Affirm, Klarna. Block, etc.). Market valuations have plummeted 50–80% since the beginning of this year. So, this uptick in consumer usage should boost their morale (even if it doesn’t do much for their valuations).
The factors driving this adoption spike, however, are unclear. Is BNPL the new credit card — a new payment method that’s displacing credit cards as the preferred means of payment? Or is it a financial support crutch during tough times? This is not clear from the data. It isn’t clear whether shoppers are using BNPL because they are seeing it everywhere as more e-commerce sites adopted them this year or if more shoppers are explicitly seeking it out as a payment option.
Is it because BNPL is now available with a larger number of online sites than last year? Or is it driven due to economic circumstances? Or is it just a signal of demographic change that indicates more younger consumers spending for the first time during the holidays, who prefer contemporary payment methods?
Given the recent emergence of this trend, there are more questions than answers. One thing is for certain — that consumers prefer convenience. When the growth of BNPL is seen in the context of Apple Pay’s usage growth, it signals consumers’ preference for convenience over everything else.
Reference Links:
https://www.retaildive.com/news/cyber-monday-spend-bnpl-electronics-toys-inflation/637462/
https://www.bolt.com/blog/cyber-week-data-shows-alternative-payment-methods-gaining-in-popularity
https://www.salesforce.com/resources/research-reports/retail-holiday-insights/
