During the pandemic, economic pressures increased the need for many consumers to split payments over time. As a result, the buy now, pay later (BNPL) industry experienced explosive growth between January 2020 and July 2021 — with much of that growth in the online retail sector.
Fast forward to 2023, with rising costs and other financial concerns causing consumers to reconsider their spending. As inflation increases and the dollar’s value decreases, households often need to cut expenses. This is particularly true of discretionary spending and the costlier products people are more likely to use BNPL financing for.
While monthly BNPL usage is lower than it was a year ago, there is hope. In fact, retailers that leverage innovative BNPL technology will not only weather the shifting economy but are more likely to come out stronger on the other side.
“With the pandemic and today’s economic uncertainty, people are warier of what they can afford to buy,” says Gaurav Sethi, Chief Product & Strategy Officer for Citizens Pay. “BNPL options enable them to make those bigger purchases in a more responsible way. It’s a tool that should be in any retailer’s tool kit.”
Building customer loyalty
These days, merchants often focus more on driving immediate results and revenue rather than on long-term planning for future growth. For most businesses, building customer loyalty may be a more worthwhile goal. They can do so by focusing on existing relationships where they’re solving for multiple consumer needs and creating more lifetime value.
Customizable BNPL platforms allow retailers to innovate and draw on what they already know about their customers. In other words, it can be a strategic, low-cost way to attract and maintain customers. For example, a BNPL that facilitates product upgrades and bundles will create loyalty through long-term savings for the customer.
Reimagining the right financial partner
Finding the right BNPL partner — one that focuses on retailers’ needs, helps draw customers back for repeat purchases and spans the breadth of their demands — can help.
While retailers may see banks as more trustworthy and less risky, they may choose a fintech BNPL because they’re perceived as nimbler or more tech-savvy. In fact, bank-backed BNPLs have several advantages over fintechs:
- Credit bureau transparency: Unlike fintechs, banks report consumer lending activities to credit bureaus, which provides transparency for the consumer, lender and retailer — and ensures more judicious lending practices.
- Regulatory experience: Banks are also more uniquely positioned to handle new credit reporting requirements and/or increased federal regulations that may soon apply to BNPLs.
- Cost control: Because banks have their own deposit base and keep balances on their own balance sheets, they often have more control over certain fees than fintechs do. This can minimize what costs get passed on to retailers.
Addressing common pain points
Utilizing a robust BNPL program can help retailers address their customers’ needs and pain points. For example, the best BNPLs optimize the buying experience through:
- Speed of purchase: Unlike traditional lending options, the best BNPLs enable customers to make payments over time — without separate applications, potential fees and additional processing time. An open line of credit also simplifies repeat purchases.
- Clearer terms: The best BNPL partners give customers as much upfront information as possible about the payment process and potential fees. Maybe that’s why 30% of users say they trust BNPLs more than credit card companies regarding fair business practices.
- Transparency: Some BNPLs give customers a predictable, fixed monthly payment amount at the time of purchase. Knowing exactly how much they must pay each month gives customers more confidence to buy.
- Reputation: Banks understand economic cycles, consumer spending and how to protect consumers from unintended debt. As a result, bank-backed BNPLs offer additional protection and expertise that newer fintechs simply can’t.
Understanding retailers’ unique needs
Like customers, retailers want to feel “seen” when implementing new technology for their businesses. Because different retailers have varied needs, BNPL providers that offer a more customizable and configurable product will make the best partners.
Adopting a robust pay over time solution will likely grow your business if you choose one that offers flexibility and the right benefits.
Helping retailers stay competitive
Providing customers with an easier way to afford larger purchases, and making upgrades and different feature configurations available, helps retailers remain competitive. This is especially helpful in industries like consumer electronics — among the most common uses of BNPL financing — where frequent upgrades and add-ons are the norm.
While there’s no foolproof way to maintain customer loyalty amid an economic downturn, the expedient use of BNPL technology can help. Not only does it help consumers make larger purchases when their money is worth less, but when the economy improves, retailers offering BNPL will be ahead of the game.