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May 12

Gen Z turns to Buy Now, Pay Later as payment alternative

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When today’s consumers pay for their new couch or outfit, they don’t even need to reach for their wallet—and not just because they’re tapping their smartphones or paying in-app.

Instead, the consumer lending solution known as Buy Now, Pay Later (BNPL) is surging—and like many trends in payments these days, Gen Z is propelling the shift toward this payment alternative.

Given its rising popularity with Gen Z, both merchants and payment providers are increasingly eager to provide a BNPL option to this vibrant demographic.

BNPL benefits consumers and merchants alike

There’s little doubt why. Customer satisfaction with BNPL is high, with 61 percent of those who have used the payment method reporting they are satisfied or very satisfied. 1 U.S. volume of BNPL is projected to surpass the $100 billion mark annually by 2024, from $55 billion in 2021.2

The surge in these programs stems from a confluence of earlier trends. BNPL is a payment method that has evolved from “lay-away” type programs of the past. But instead of leaving the merchandise at the store until all the payments are made, the consumer can walk away with it after the first payment. Often approved through a streamlined application process directly at the point of sale or online, consumers are increasingly attracted by the offering’s ease and convenience.

These solutions originally gained popularity in Australia and Europe and are now booming internationally, with their rise in popularity even further accelerated by the growth of digital transactions during the pandemic. BNPL loans typically split the purchase price into a series of smaller payments, allowing consumers to make more predictable payments for a fixed set of months.

Gen Z shoppers, who generally have less disposable income than older groups, find BNPL especially appealing as an easy budgeting tool. They enjoy being able to take home their merchandise, often without accumulating interest and, depending on the program, without relying on access to available credit.

These programs benefit retailers as well, since they can advertise interest-free installments as special pricing offers for shoppers—welcome features during these times of financial insecurity. In fact, merchants are often quick to absorb the associated borrowing costs to promote BNPL as “free” financing solutions for customers.

“Buy now, pay later” provides consumers with more payment options, as well as higher conversion rates, a broader and more diversified customer base, and enhanced user experience. To effectively support merhants across the world with the payment methods of their choice and at the same time minimize their transaction risks, Oceanpayment offers a wide selection of “buy now, pay later” payment methods, including Klarna, instalment payment, etc. that the merchants could choose form.

Younger demographics have gravitated to BNPL

With a growing number of merchants seeking to incorporate BNPL into their checkout options, those targeting younger demographics will find it particularly useful. The option to divide purchases into flexible installments allows these customers to make smaller purchases, as well as bigger-ticket items, without affecting their day-to-day budgets. As a result, offering BNPL can lead to increased visits and decreased cart abandonment. 

Research shows that BNPL is popular with younger populations because it offers both predictable financial flexibility and simpler borrowing terms. In fact, many solutions offer lower interest rates than traditional credit cards. In addition, BNPL appeals to this demographic’s general desire for instant gratification. 

No wonder younger consumers are actively seeking this kind of financing alternative. Mercator Research found that 52 percent of respondents aged 18-24 used BNPL or short-term loans in the past 12 months, compared to only 12 percent of those older than 65.3

Bringing merchants and consumers new payment options

Discover® and Oceanpayment are always looking for new ways to offer payment convenience and flexibility to consumers and merchants. In our view, BNPL is a great option: It fits with our belief in financial inclusivity, and it directly supports our mission to help people spend smarter, manage debt better and save more money so they can achieve a brighter financial future.

The younger consumers’ expectation of “real-time enjoyment” has not only driven the rapid proliferation of “buy now, pay later” payment methods, but also generated numerous, diverse opportunities for the merchants. By leveraging these opportunities, we would be positioned to better support our merchants with payment solutions that meet the consumer’s needs.

References

1 Mercator Advisory Group, Spring 2021. 2021 North American PaymentsInsights-Buy Now Pay Later. Viewed 24th August, 2021.

2 Mercator Advisory Group, May 2021. Buy Now, Pay Later: Gaining Scale and Disrupting the Status Quo in Lending. Viewed 24th August, 2021. 

3 Mercator Advisory Group, Spring 2021. 2021 North American Payments Insights-Buy Now Pay Later. Viewed 24th August, 2021.

The information provided herein is owned by Discover® Global Network and issued by Oceanpayment. It is intended for use by multiple partners and for informational purposes, and is not intended as a substitute for professional advice.