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Why Has Buy Now Pay Later Payment Option Grown?

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Last editedFeb 20232 min read

Whether it’s AfterPay, Klarna, or Affirm, an increasing number of ecommerce websites list a buy now pay later payment option at the checkout page. Buy now pay later, or BNPL, has grown from an obscure online payment option to a $97 billion industry in 2020 alone. In this guide, we’ll discuss the benefits of buy now pay later as well as a few of the reasons why it has grown in popularity.

How does buy now pay later work?

Let’s start with the basics: how does buy now pay later work? BNPL is a payment option allowing customers to spread the cost of their purchase out over time. The customer may or may not make an initial down payment at the time of purchase, followed by a series of regular installment payments. BNPL payments usually come with 0% interest, making them a more affordable, accessible form of credit in comparison to credit cards. Fees do usually kick in for late payments, however. All installment payments are handled by the BNPL service, meaning that the merchant doesn’t have to deal with collecting and processing the payments directly.

Growth of buy now pay later in the US

Buy now pay later services have exploded in recent years, garnering interest from major companies along the way. For example, Amazon has now partnered with Affirm to allow Amazon shoppers to split purchases over $50 into a series of smaller installments. AfterPay was recently acquired by Square, and both Apple and PayPal now offer BNPL services. Consistent growth cuts across all age demographics, according to research from Cornerstone Advisors. In the US alone, the percentage of Gen Z consumers using BNPL grew from 6% in 2019 to 36% in 2021. Millennial use grew from 17% to 41%, Gen X users went from 9% to 30%, and Boomer use of BNPL grew from just 1% in 2019 to 18% in 2021.

According to a Q4 2021 BNPL Survey, the medium to long-term outlook remains strong, with BNPL Gross Merchandise Value expected to reach $443,781.4 million by 2028. In addition to its convenience for users, there are a few factors driving this expected growth. The first is BNPL’s use to pay for subscription services, with merchants like Savage X Fenty and Fabletics allowing consumers to pay in installments for their services. While this payment method has traditionally been used for the online market, BNPL providers are now also working with retailers to increase in-store sales. With cross-channel payments on the table, BNPL is increasing its alliances with numerous platforms and big-name retailers.

Benefits of buy now pay later

Why is buy now pay later so popular with both consumers and retailers? It offers several benefits to consider. It allows consumers to purchase bigger ticket items and spread the cost out over time, without any need for a hard credit check. This makes it an option for those with less than perfect credit, who might otherwise be unable to make the purchase. It’s also beneficial to the merchant, who increases their sales by offering a convenient, flexible payment method to a wider range of customers.

How to get buy now pay later

There are numerous benefits of buy now pay later, fueling its recent growth in the United States and beyond. With few downsides for businesses, you might be wondering how to get buy now pay later added as a payment method on your website. While some larger companies might set up their own installment payment system, it’s easiest to use a ready-made service like Klarna or Clearpay. GoCardless integrates with top BNPL providers like Klarna to collect installment payments using direct debit. It’s a win-win for customers who enjoy automatic payments, as well as for businesses who can pull payment directly from a customer’s bank account on the day it’s due.

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GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

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