Buy now, pay later: How millennials & gen Z want to shop webinar

How younger consumers prefer to shop — and why the surge in buy now, pay later may last.

Learn how merchants can infuse the shopping experience with the flexibility, choice, and trust that younger consumers expect.

Flexibility, choice, and trust in payments are key

“Digital wallets create the choice that younger consumers are looking for when they’re shopping online, and when buy now, pay later is part of digital wallets, we see the usage of buy now, pay later surge.”

Hargrave kicked off the session by emphasizing that the idea that Millennials hate credit is a widely perpetuated myth. In contrast, data shows that nearly 9 out of 10 millennials aged 24-39 own a credit card.¹ Younger consumers’ behavior is really impacted by three key factors in payments: flexibility, choice, and trust.

Hargrave pointed out that Millennials have come of age and may be considering flexible ways to pay for time- and money-intensive milestones like getting married, starting a family, and purchasing a home. Many younger consumers are often drawn to payment methods like digital wallets that can empower them with choice in how they pay, including BNPL options. Hargrave also underscored the importance of trust by pointing to data that shows 78% of consumers rating security above convenience when shopping online.²

BNPL sits at the intersection of these three key factors, fulfilling the desire for choice among younger consumers who are drawn to digital wallets, while also providing flexibility in paying for items they need. Hargrave shared: “Digital wallets create the choice that younger consumers are looking for when they’re shopping online, and when buy now, pay later is part of digital wallets, we see the usage of buy now, pay later surge.”

When BNPL is facilitated by a name consumers trust, it can make the shopping experience that much more seamless. Leading brands like PayPal can optimize the customer experience, with 79% of consumers rating “trust that their financial information is secure” as the number one factor when paying online.²

Merchants must re-imagine the shopping experience

“At the end of the day, people aren’t looking at a screen thinking about ‘how am I going to click through this screen to get my stuff?’ They’re thinking about opening their box and getting their stuff.”

While the pandemic accelerated some of the challenges faced by retailers, including their ability to serve younger, digital-first customers in the Millennial and Gen Z segment, Nagarsheth emphasized that it’s important to recognize that these generations are not a monolith.

“They do have diversity. While we can see some trends — they love digital payments, they’re early adopters of wallets, many have tried buy now pay later — they also have some other behaviors that might seem counterintuitive. Many of them actually carry a fair amount of cash,” said Nagarsheth. The point is that you want to be able to tailor your propositions as a retailer to what’s really driving the consumer.

Retailers must rethink the entire shopping experience as ecommerce evolves into contextual shopping opportunities across platforms. “It used to be ‘Go get a .com address’ and you were an online merchant. Now, not so much. Now we’re seeing that mobile is taking on an increasing role. Even if you’re an omnichannel retailer, you have to have a seamless experience,” said Nagarsheth.

Nagarsheth said younger consumers hold unique attitudes about credit, digital wallets, and other financing options — attitudes that retailers should acknowledge in order to boost conversions and retain loyal customers. This is especially pertinent as nimble, digital-first brands that understand consumers and new, digital marketplaces turn up the competitive heat. Both Hargrave and Nagarsheth agreed that the market is forging a new future for credit, ranging from unbundled credit to non-financial institution providers stepping in as future leaders via payment options like BNPL.

Hargrave added that merchants must think about the fact that consumers are “not necessarily thinking about the payment experience, but they want to know that they can get their stuff.” She noted that this is where trust plays an important role, especially combined with a flexible, easy checkout experience that helps consumers stay within their budget the way that BNPL options do. This sense of control, along with the trust in their payment method, are important for merchants to consider.

The convenience factor is here to stay, and so is BNPL

While merchants must shift their strategies to better serve younger consumers, BNPL may hold the key to capturing and retaining these consumers long-term. These digital natives have embraced the shift toward digital payments, and 90% of consumers who increased use of emerging payment methods expect to maintain increased use post-covid.³ In other words, pandemic-driven behaviors are likely to stick.

Hargrave described how consumers are embracing the convenience of online shopping, from the ability to pay online and pick up in-store, to managing all of their buy now, pay later transactions online, and using those features to help them stick to their budgets.

This reality means the opportunity for BNPL is ripe when implemented correctly. Retailers can work with payments partners to help attract new customers, increase conversions, and drive loyalty. More specifically, retailers are leveraging solutions like PayPal’s Pay in 4 option that can infuse flexible spending into everyday online commerce. In fact, businesses with Pay Later messaging on their site saw Pay in 4 AOVs 39% higher than standard PayPal transactions⁴ and more than a third of Pay in 4 sales are from consumers under 30 years of age⁴.

Nagarsheth agreed that the opportunity for BNPL options continues to grow, but also pointed out that the BNPL experience must be curated yet convenient, without adding friction to the consumer experience. This means that merchants must also look beyond just credit scores when evaluating creditworthiness, taking care to extend credit for financial behavior while also avoiding financial trouble that could jeopardize the long-term relationship.

Deeply understanding customers based on what the data reveals and digging deeper than stated preferences are also critical when adding consumer value through BNPL options. Hargrave added that merchants are getting better at using data. “I think that’s one of the reasons [merchants] turn to a company like PayPal that we really know our customers. One of the ways that merchants can differentiate buy now, pay later is by leveraging partners that have that kind of history with customers.

Both Hargrave and Nagarsheth also emphasized the importance of meeting the customer where they are based on their needs and their precise shopping habits in the moment. These factors are important in providing tailored options, messaging, and experiences that make the customer feel comfortable in meeting their own budget needs. Merchants that embrace this customer-centric approach via BNPL options will be well-positioned to drive meaningful results for the brand.

“They’re not looking for a payment experience, they’re looking for a shopping experience,” said Hargrave.

Learn more about PayPal's pay later offerings here.