The Buy Now Pay Later Ready Reckoner

Considering the way the pandemic has changed perspectives, The Buy Now Pay Later trend is here for good. Everyone from major banks to IT behemoths to Fintechs wants to be part of it. And the latest entrant in this emerging field is Apple Inc. It is preparing to introduce a “Buy Now, Pay Later” (BNPL) service in collaboration with Goldman Sachs Group. Customers who use Apple Pay will be able to pay for any transaction in installments over a certain period of time utilizing the Apple Pay Later service. As a result, consumers will be more likely to use Apple Pay since they would be able to purchase goods that they would not otherwise be able to afford. The global market for this specialized and growing service is projected to be over USD 22 trillion. 2 And as it begins to attract both customers and providers, it is important to understand how it works, the myriad factors fuelling its adoption, and its potential for growth.

BNPL vs Credit Cards

Deferred payments isn’t a new challenge as it has existed for long The credit card business is based on the concept of delayed payments for the purchase. So, why is there a new model for delayed payments being implemented? The primary distinction between BNPL services and credit cards is their simplicity. Unlike a credit card, there are no interest costs to pay on BNPL services, and they may be used instantly.

Customers can also delay payments much beyond the monthly credit card cycle. In 2018, 45 percent of digital consumers indicated that the type of payment choices offered was essential in their purchasing decision, which is supported by the growing use of BNPL models. 3 Furthermore, there are no application processes or background checks for these services. Users can begin using the scheme at the point of sale right now. This allows consumers greater freedom and flexibility to better manage their money and purchase goods they would not otherwise be able to afford.

The BNPL Customer

The credit card business has survived for decades, despite high-interest rates and lengthy approval processes. What has changed since then? The development of a new breed of financial services consumer has been the most important change. As more Generation X and millennials enter the formal banking system, the need for simple, frictionless, and on-demand services grows. They are also technologically aware and at ease not just with online shopping but also with a multitude of digital payment methods and digital financial services. Many of these clients may also have poor or insufficient credit histories, making it difficult for them to obtain credit cards.

Buy Now Pay Later enables individuals to purchase what they require without concern of excessive interest rates, as these programs often only apply late penalties in the event of payment failures. Not surprisingly, the use of BNPL programs was highest among those aged 18 to 24, with a 62 percent increase between June 2020 and March 2021. This is not to suggest that older generations do not make use of these services. According to research, there was a 98 percent rise in BNPL usage among the 55+ age group between June 2020 and March 2021, and 53 percent of consumers who had never used these services before said they were interested in trying them out within the following year.

Accelerating Adoption

More consumers have experimented with BNPL alternatives in recent years. In 2021, 55. 8 percent of customers tried BNPL, an almost 50 percent raise over the 37. 65 percent who tried it in July 2020. The COVID 19 epidemic definitely played a role in this. Work and life have been significantly interrupted during the last year and a half. As banks shuttered branches to safeguard staff and customers, and lockdowns drove people indoors, digital payments became more popular.

The economic slump caused by the pandemic has resulted in lower earnings and increased financial prudence. BNPL allows such consumers to buy things when they need them without having to wait for credit card approvals or pay exorbitant interest rates. Customers who started using BNPL in the last year claimed they did so to save money for emergencies, while 25% said it was due to a reduction in income.

Regardless of how the epidemic develops in the future, it is now apparent that client financial habits will be eternally altered. Banking customers are unlikely to revert to their previous banking practices, owing to the growing use of digital payments and an increased desire for new financial services. As a result, the demand for and acceptability of BNPL is only expected to grow in the coming years.

The BNPL market is quickly developing, with not only fintech but also technological behemoths joining the battle. It is a service that lends itself readily to cooperation, financial services platforms, and ecosystems, and we are sure to see some exciting advancements in the sector. There is also plenty of potential for creative collaborations and developments depending on consumer input. Afterpay's partnership with Westpac for banking as a service, for example, arose from user feedback - why not go further with their tagline "How can I Afterpay my life?" Clearly, it was a major customer problem that could be readily addressed with the appropriate partner on board. This is a developing area with opportunities for significant innovation, and financial institutions must constantly follow changes in order to guarantee their future piece of the BNPL pie.