Gone are the days of retailers asking, “cash or credit?” Consumers are increasingly looking to use new payment solutions, such as buy now, pay later (BNPL), for nearly every purchase they make — large and small.
PayPal Vice President of Global Pay Later Products Greg Lisiewski said in a PYMNTS TV interview that the pandemic has accelerated the adoption of BNPL among both consumers and businesses.
“On the merchant side, we’ve seen it really penetrate most verticals — not as widely adopted yet as in fashion and apparel, but it’s getting there,” Lisiewski said. “[Offering BNPL] is table stakes.”
Over two-thirds of users outside of millennials and Generation Z use PayPal’s Pay in 4 product, and the financing option has moved beyond apparel and beauty retailers into other categories, such as automotive and travel. PayPal was among the first BNPL providers when it acquired “Bill Me Later,” although that was primarily targeted at larger purchases. Lisiewski estimated that about half of eCommerce is now covered in some way with a BNPL solution.
The Non-Retail Case for BNPL
Anthony Rodio, president and CEO of mobile auto repair provider YourMechanic, said BNPL is a “humongously important part of our offer,” considering the average car in the U.S. is over 11 years old and the average car serviced by YourMechanic is about 12 years old.
“A large chunk of our customers don’t have $300 extra sitting around, but they need their cars,” Rodio said. “It’s the only way they get to their livelihood, whatever that job may be. They need that vehicle, and they may not be getting paid for a week or two weeks. So, buy now, pay later enables them to keep living their life and working.”
PYMNTS research, conducted in collaboration with PayPal, found that 32% of BNPL users said they couldn’t afford a certain purchase without it, and nearly 39% said they used it because they knew what the monthly payment would be and for how long. Approximately 29 million U.S. adults have used BNPL in the last 12 months.
Separate research has also found that over 60% of millennials in the U.S. are living paycheck to paycheck as they begin to make larger expenditures for the first time, whether that means purchasing a car, taking out a mortgage or preparing financially to have children.
Read more: 43M US Millennials Report Living Paycheck to Paycheck
About 30% of YourMechanic customers use BNPL to finance car repairs, which Rodio said initially stunned the company because the average order value was less than $200.
“We’re dealing with people without a lot of disposable income, and they need help across the whole plethora of anything,” Rodio told PYMNTS.
Sam Argyle, managing director of travel booking platform Alternative Airlines, said BNPL is also quickly expanding within his industry, with people now expecting the payment option to be available when booking a trip. Alternative Airlines offers over 40 payment methods, including credit cards, eWallets and cryptocurrency, in order to meet the range of purchase sizes in the travel industry — from a $550 ticket, which is good for a biweekly installment option, to a $2,000 trip to Hawaii, which may fit better with a six-month or 12-month option.
Argyle said the company has seen “huge traction” for BNPL when it comes to unbudgeted, unplanned trips.
“Typically, you may have saved up for your two weeks holiday somewhere, but the last-minute unplanned trips, being able to finance that over a period of time, really resonates with customers,” he said. “And working with many of the leading buy now, pay later offerings on our site gives real credibility and confidence for customers to book through us.”
Aligning Expenditures With Cash Flow
As use of BNPL has spread across the connected economy, one of the great benefits, Lisiewski said, is that “it’s really a democratized solution for merchants of all sizes,” beyond where traditional point-of-sale (POS) finance lives. Previously, financing options were limited to niche, high-margin verticals such as furniture and big-box stores, which did deals with banks and created private label cards with financing at the center.
“But now you can be the Main Street hardware store that survived all the consolidation in retail and now offer buy now, pay later solutions, where before your customers had to go to Home Depot or Lowe’s if financing was important to the purchase,” Lisiewski said. “Think of bridal shops — any smaller, regional business is really in a great position.”
BNPL may also start to pop up in non-discretionary categories beyond auto repair, Lisiewski added, pointing specifically to the possibility of smoothing out rent payments.
“Anything that gets back to aligning expenditure with cash flow I think is good for consumers,” he said. “And you’ll start to see these solutions penetrate other non-retail verticals but big spend categories.”
Rodio said customers are also seeing the benefit of BNPL as it becomes more ubiquitous.
“Consumers understand it because they feel the pain of not having the ability to have an unexpected spend arise, and they know they need it,” he said.
The challenge, he added, is convincing service providers to adopt BNPL. Plumbers, electricians and other tradespeople often work primarily with cash because they hire labor based on the work, which makes it difficult to bring in a financing solution.
“It’s going to be partly education in a services marketplace-type mentality, the supply side of the benefits of extra demand,” Rodio said. “I know it’s coming, but they’ve been a little reluctant.”
The Next Frontier
Lisiewski said he expects BNPL use to continue to grow, although consolidation within the space is all but guaranteed “because there’s just not enough room.” In early August, for example, Square agreed to acquire Afterpay for $29 billion.
“I think if we fast-forward 18 to 24 months, the category will continue to grow,” he said. “I think there’ll just be fewer players providing solutions to cover all sorts of use cases. And who knows? Maybe someone we haven’t heard of yet will find a new edge in a different use case.”
Argyle said as BNPL grows, though, it’s important to find the right balance between responsible lending and approval rates. As a merchant, Alternative Airlines wants to see as strong approval rates as possible, “but we are a big believer that responsible lending and the message around giving it to those that can repay it,” he said.
“It’s just that constant trade-off between the two because we need to see strong approval rates for sales, but we also want to see repeat business from customers,” Argyle said. “And therefore, responsible lending needs to happen as well.”
