The Feasibility of ‘Buy Now, Pay Later' Options amid Pandemic

Buy now, pay later (BNPL) alternatives have made a strong case worldwide in recent months as people shift both their purchasing and expense habits in response to Covid-19. Offering flexible payment methods that consumers feel they can pay for is now retailers’ goal, as many are also suffering from financial stresses due to the pandemic.  

Let us examine the installment payments’ emerging popularity during the pandemic and how the current financial uncertainties may push the BNPL industry forward.

Accumulating Financial Security

The financial disruption following the pandemic has expedited the number of companies and consumers trying out alternative payment options. The whole world is facing more challenging financial situations, with increasing unemployment rates and growing anxieties about the economy. These have been cutting customers’ purchasing power as well as companies’ incomes. Hence, each of them is working toward making necessary transactions reasonable or more seamless. And most of them have determined that the BNPL option is a viable solution.

The BNPL option turns a single large purchase into a number of smaller transactions, usually without any interest if the payment is made quickly. This scheme permits customers to either buy items of daily use/essentials and pay a cumulative bill later. Basically, it allows consumers to have some financial wiggle room in these tough times. These payment solutions have thus become more enticing to customers than methods that charge a fee to the final purchase tally, both during normal and pandemic times.

Such payments can also help both retailers and customers re-experience the sense of stability they have been craving for during uncertainties like the financial slump. Customers can feel more relaxed that items that are damaged during the pandemic can be replaced easily. Further, BNPL also helps to ease the costs of lower-priced items and allows individuals to pay for the day’s groceries.

The BNPL method is showing results. Many vendors and shopkeepers providing this option have stated an uptick in customer adoption figures and a larger percentage of repeat customers as enthusiasm around BNPL picks up. In fact, one BNPL provider, saw $1 billion in U.S. sales and assisted 4.4 million consumers for the third quarter of its 2020 financial year. There was a 238 per cent growth in its user base compared to the same quarter in 2019. The timeline also saw a drop in credit card transactions stated by Visa. This shows that customers may now be shifting from credit toward BNPL.

As the pandemic continues, bankers and customers look toward substitutes like digital wallets to help impacted businesses as well as generate more financial stability for customers. These kinds of developments are aimed toward short-term improvements. This indicates both regulators and bankers are expecting that the current spending damage can be quickly alleviated

BNPL's Rise and Credit's Fall  

The pandemic may have created more interest in options such as BNPL. However, the practice was on the rise in various markets, such as U.S.A and Australia, even before the pandemic. The model has become much more significant specifically to the younger customers who are tech-savvy and seek a better payment experience. 

A recent survey shows 34 per cent or about one in every three millennials have added to their credit card debt since the onset of the pandemic. These customers, many of whom are now dealing with student loan bills and additional sources of high-interest debt, have a notable distrust for credit. Due to this reason, many people in this generation were fascinated by BNPL solutions well before the pandemic started affecting personal finances. Therefore, BNPL products have the potential for a resilient future.

This could signify a chance for retailers who wish to build more trust and healthier relationships with these customers. BNPL product suppliers, developers, and merchant partners still have time to prove that the installment payments can benefit customers to afford what they require without the burdens of added interest and accumulating more debt. Cautiously spotting how these customers are using BNPL during the pandemic will thus be critical to adopting statistics and product rollouts in the future.

The author is Co-Founder and CEO of Simpl.

DISCLAIMER: Views expressed are the author's own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.