Every retailer has the goal of driving greater customer loyalty and increasing conversions, but when they are fine-tuning their conversion funnel, they often overlook a critical area – how customers pay for services and goods. Sure, retailers make check out and paying convenient – consumers only need to hand over their credit card or type it in. But, many retailers haven't stopped to consider whether credit cards remain as the preferred payment experience for the consumer. Often it's not, especially for younger consumers who want to pay with their own money.
In 2020 alone, approximately 90% of Afterpay's global customers have used debit cards to make purchases. But, it’s not just a question of credit or debit – consumers are looking for greater payment flexibility overall, and want options that are flexible, budget-friendly and empower, not entrap.
To gain more insights into how the types of payment options retailers offer can increase or decrease conversions, Retail Dive’s Brand Studio spoke with Melissa Davis, global chief revenue officer at Afterpay, a shop now, pay later online payment provider. As someone who oversees the company's sales strategy from enterprise to SMB businesses and looks after client success and sales operations, she has a strong pulse on how online and offline payments are evolving in retail, and why it matters.
What do retailers need to think about to make sure the payment process is optimized to increase conversions?
Davis: It is critical for retailers to understand where consumers are in their shopping journey and what hurdles or barriers they might be facing before completing their purchase. Price is a big factor in a consumer's mind, which is why showing a price breakdown on the product page is so beneficial for customers and increases conversions. Shopping cart abandonment makes up $18B in lost revenue opportunity for retailers each year, which creates a great opportunity for retailers to offer consumers choice when it comes to payment flexibility.
Do you see different payment preferences by generation?
Davis: In addition to this significant shift to the use of debit, we are also seeing new consumer segments join the Afterpay platform. This demonstrates that buy-now-pay-later is being normalized as a payment option for all demographics. While the average age of our customers is early 30's, older consumers, those with higher income brackets and men are utilizing the service in greater numbers.
How can a deferred payment option boost sales for retailers?
Davis: Buy now, pay later offerings at check out give customers the flexibility to shop now and pay later. With this flexibility, customers are more likely to add more to their cart and less likely to return their items. This increases the AOV and basket size for the retailer and cuts back on returns. When a customer pays for an item or a service over time versus all at once, they are more likely to use it more often because it remains top of mind, and therefore more likely to have a positive association with the retailer and purchase from the retailer more often.
Afterpay recently announced that it's going to start offering its service at brick and mortar stores. Can you talk about this decision and how you think it will positively impact retailers?
Davis: Similar to using Afterpay online, customers in the U.S. will be able to pay securely and simply pay for their in-store purchases in four installment payments, without the need to take out a traditional loan or pay upfront fees or interest. The service is completely free for consumers who pay on time. Our customers are looking for more ways to budget their purchases with in-store representing a huge portion of their overall spend. Being able to use Afterpay throughout their entire shopping journey, regardless of channel, was critical as people looked to Afterpay for more and more of their overall spend.
Afterpay also recently announced it's launching an invite-only loyalty program. This is a unique approach. Why did you decide to make it invite-only, and how do you see it increasing consumer loyalty and driving greater overall revenue for Afterpay and retailers?
Davis: We recognize that millennials and Gen Z are increasingly making a conscious choice to use debit cards, yet their responsible decision of spending their own money is not rewarded. We built Pulse, our loyalty program, to fulfill a need and offer a program in which both consumers and retailers benefit. This approach is fundamental to our mission and values as a company to encourage financial wellness and power an economy where everyone wins. Until today, there has been no way for debit card users to earn rewards or benefits for the way they pay. By offering Pulse, we're rewarding consumers for paying in a way they prefer, with their debit cards, while also discouraging the use of expensive loans with interest, fees and revolving and extended debt.
For retailers, Pulse provides a unique opportunity to increase sales and acquire new customers by targeting the most valuable consumers in the world – millennial and Gen Z shoppers – with special offers and promotions. You are aligning your brand with a brand that celebrates responsible spending, not overspending.
What kind of results have retailers who've added the option for consumers to buy now, pay later experienced when it comes to conversion rates or increased traffic?
Davis: Retailers see a number of benefits when it comes to partnering with Afterpay. They see an increase in AOV, larger basket size and lower return rates, as well as an uptick in new and repeat customers. Some of the key statistics include:
- 45-80% increase in new-to-file customers
- 50-200% increase in units per transaction
- 8-18% decrease in returns
In fact, retailers offering Afterpay see a conversion of approximately 20-30% higher than other payment methods, and significant new customer acquisition coming from Afterpay's owned channels. In April of 2020, Afterpay had more than 15 million app and site visits, and Afterpay’s U.S. Shop Directory contributed nearly 10 million lead referrals to its retail partners.