The rise of Buy Now, Pay Later: Transforming the payments landscape

In times of economic uncertainty, consumers may look to shorter term, more flexible options that offer the freedom to purchase larger items. Statistics show that BNPL use changes with income levels and shows a generational difference in uptake.

Consumers ages 18-26, are more likely to use the service compared to other generations, with 37% of Gen Z having used BNPL recently.¹ Given that these young people are the high-income shoppers of tomorrow, it’s wise for decision-makers to take note of their habits and monitor the evolution of BNPL.

The impact of installment plans on the payments landscape

Buy now, pay later installments sometimes charge zero interest (but if repayments are not made on time, late fees may be applied). After a long period of interest rate rises, it’s no surprise that shoppers are turning to BNPL for their short-term borrowing needs. This trend of consumer behavior has, of course, impacted the financial landscape.

Merchants not offering BNPL may lose out to their competitors that do. Following a nearly 400% increase in BNPL adoption between 2019 and 2021, it’s now predicted that global BNPL transactions will increase to almost $450 billion by 2026.²

The different reasons Buy Now, Pay Later is driving consumer behavior

BNPL offers those with tight budgets the flexibility to purchase large items and pay in installments sometimes without high interest rates. Provided payment terms are met, it possibly offers a reduction in cost compared to other credit options. BNPL affords these consumers the financial accessibility that they may not have previously had.

In turn, these buyers could have the ability to make larger purchases sooner or more frequently than before. To learn more visit PayPal’s BNPL merchant guide.

BNPL is also showing growth and popularity amongst several age groups. 19% of those aged 55+ have used BNPL, rising to 33% of those aged 45-54, and 50% 25–44-year-olds.³

This could be a sign that BNPL could hold appeal almost universally, especially around times of increased spending, like the holidays.

BNPL as a solution for global business

BNPL’s benefits don’t begin and end with the consumer – merchants may also see advantages.

The greater financial accessibility BNPL facilitates for the consumer promotes financial inclusion, which could in turn lead to an uptick in profitability and customer loyalty. 40% of BNPL users have reportedly delayed or canceled a transaction when BNPL was not an available option⁴ – representing a significant loss in market potential.

BNPL can also help lower risk compared to some other payment solutions as the full balance of the transaction is paid almost immediately. However, BNPL risks should also be considered. For example, finding a reputable provider could mitigate the risk of financial loss.

The growing BNPL landscape

As the BNPL landscape expands, so must the laws and regulations that protect consumers from potential dangers like overextension. Merchants need to continually familiarize themselves with regulatory challenges and updates – such as legally referring to BNPL payment options as loans.

Careful monitoring and control measures are crucial to ensure compliance with existing and upcoming laws and regulations, protecting all parties involved.

Is Buy Now, Pay Later the future for business

When considering whether to offer BNPL, collaborating with a trusted provider is, of course, crucial. PayPal has extensive expertise in navigating payments and consumer experience and could aid enterprises in utilizing BNPL to help attract new customers and grow incremental sales and loyalty.

Learn more about PayPal Pay Later.