Inside the buy now, pay later explosion: here’s why 2020’s red-hot financing trend is attracting millions of users and being embraced by everyone from PayPal to Goldman Sachs

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Point-of-sale financing has been around for a while. From in-store layaway to store-branded credit cards, retailers have always used financing as a way to convert browsers to buyers. 

But over the last several years, a cohort of fintechs have cropped up offering a new way for retailers to boost sales: buy now, pay later. From no-interest, two-week installment plans to longer-term financing, fintechs like Affirm, Afterpay, and Klarna, to name a few, have won over millions of consumers and tens of thousands of retailers with their digital-forward, easy-to-use alternatives to credit cards.

It’s no secret that e-commerce is on the rise with continued growth year-over-year for the last decade. And like other digitally-driven trends, the coronavirus pandemic has only accelerated growth in the e-commerce segment.

In 2019, e-commerce accounted for 11% of total retail sales in the US. In 2020, total retail sales have been down, but in the second quarter this year, with brick-and-mortar retail largely shut down, e-commerce grew to 16% of total retail sales, reflecting a 44% increase quarter-over-quarter, according to the US Census Bureau.

As consumers get used to doing more of their shopping online, they’re also coming around to BNPL products.

“Credit availability actually closed a great deal under pandemic conditions. So that accelerated buy now, pay later, which has emerged as the new thing at the point-of-sale, as an alternative way to actually get credit, which was important,” Ben Savage, partner at Clocktower Technology Ventures, told Business Insider. 

At the same time, consumer behavior, especially among younger consumers, has shifted away from credit to debit, Savage added. And these trends have proven to be tailwinds for BNPL providers, many of which have seen traction with Millennial and Gen Z consumers.

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Read more: PayPal’s buy now, pay later launch is kicking off the next wave of adoption. Here’s what it means for startups and banks competing in the space.

BNPL has become a must-have for retailers

This time last year, online shoppers at retailers like Asos or Casper were likely to see some version of “pay in four installments” as an option at checkout, offered by fintechs like Affirm, Afterpay, or Klarna, to name a few. But today, it seems like these BNPL buttons are everywhere, becoming a must-have for e-commerce.

Over the last six months in particular, BNPL fintechs have seen explosive growth. In May, Afterpay hit five million active shoppers in the US after just two years in the market, which is now a larger market than its native Australia. The coronavirus, no doubt, has played a significant role. Afterpay nabbed one million new customers in just a ten-week span in the second quarter, when the pandemic was at its height. 

Affirm and Klarna, too, have more than five million users.

Fintechs, who have spent years acquiring customers, are now looking to build brand stickiness with their own apps and loyalty programs.

Incumbents like PayPal and American Express, well-equipped with brand awareness and loyalty, are leaning in with their own versions of a point-of-sale financing product.

While BNPL products from fintechs and …read more

Source:: Business Insider

      

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