Consumers dive into 'Buy now, pay later'

Buy now, pay later (BNPL), more than a just a modern version of layaway, is trending with consumers and gaining traction with major brands, retailers and credit card issuers. More than 60% of online consumers have used a BNPL program and 38% of users say BNPL will eventually replace their credit cards.

Well-rounded benefits for consumers

BNPL's rising popularity can be attributed to an attractive mix of financial and emotional benefits such as convenience and flexibility, interest-free or low-rate financing, and the ability to make a large purchase immediately without the hassle of applying for credit.

With the cost of everything —f rom daily necessities like gas and groceries to luxury goods and services—on the rise, BNPL is an appealing option for consumers, especially younger, convenience-driven shoppers who may not have access to other lines of credit.

BNPL is typically a seamless, one-click experience at checkout that lets consumers make large purchases without accruing interest and minus the logistical hassle of a monthly payment.

Whether it's a pay-in-four plan — a common BNPL structure — or equal installments over a longer period of time, consumers can make a large purchase and pay it off without thinking about it again since BNPL is predicated on automatic payments.

Traditional layaway and installment payment plans offer financial benefits, but they often require tedious applications or a tiresome wait to have the purchase in hand. Making the same purchase on a credit card is convenient but can result in hefty interest charges if not paid in full during the monthly billing cycle, or unwelcome late fees if payments are not made on time. BNPL solves those customer pain points, and many shoppers are drawn to its unique mix of value and convenience.

New players build on early BNPL success

The proven success of early BNPL fintech firms — Klarna, Affirm, and Afterpay — has prompted retailers, brands, and credit card issuers to enter the field, and new partnerships are driving further expansion.

Paypal, one of the first major e-commerce partners to offer BNPL, created a seamless experience for the consumer by building on their existing presence as a payment choice at checkout to offer a pay-in-four option for purchases at any price point. More than 9 million customers have used the service.

Several notable brand partnerships have been forged to offer BNPL on significant purchases like vacations. Expedia & Affirm have teamed up to offer BNPL on travel experiences.

Consumers who may have otherwise shelved travel plans amid rising costs and pandemic strain can finance dream vacations — honeymoons, family trips, visits to bucket list destinations — and pay for them over time, interest-free.

Credit card issuers have taken note of the popularity of BNPL and entered the field with their own offerings. American Express offers a "Plan It" option that allows customers to make large purchases and pay for them over time for a small fee rather than at card's current interest rate. Delta, an Amex brand partner, promotes Plan It as an option to pay for flights over time while still earning SkyMiles rewards.

Mastercard is joining the BNPL movement by acquiring partnerships with BNPL specialists and notable brands — such as Bass Pro Shops and Cabela's, Deserve, H&R Block, i2c, Lithic, Saks Fifth Avenue, Sutton Bank and Walgreens. Mastercard Installments streamlines BNPL use both online and in-store across retailers that accept Mastercard.

Expanded opportunities for loyalty

Loyal customers are cultivated with convenient experiences that meet both their emotional and rational needs. In that sense, BNPL is a home run for winning, and keeping, loyal customers. And consumers can benefit even more now that BNPL firms have joined the loyalty landscape with their own programs.

Afterpay's three-tiered loyalty program, Pulse Rewards, offers a mix of benefits such as welcome rewards and early access to sales from favorite brands. The more points customers accumulate, the more exclusive rewards they can earn.

Klarna's rewards program, Klarna Rewards Club, places the emphasis on on-time payments rather than purchases. Customers "earn" points for each purchase, but the rewards are added to the shopper's balance when payments are made. Points can be redeemed with partners like Amazon, Walmart and Starbucks. Members also receive exclusive deals, content, and experiences.

Shoppers can double their rewards benefits by joining both the retailer and BNPL firm's loyalty programs. For example, by choosing Afterpay at checkout and joining Pulse Rewards, a member of The Nordy Club, Nordstrom's popular loyalty program, can earn points for both loyalty programs with a single purchase.

Though still relatively new, BNPL appears well-positioned for continued growth. New providers entering the field, exciting brand partnerships, and an appealing mix of benefits for consumers all indicate that BNPL is likely here to stay.