The Buy Now, Pay Later revolution

Disruption — ‘a profound change, capable of transforming our business landscape’. That’s one way to describe the Buy Now, Pay Later (BNPL) movement — disruptive. The upsurge of this method of payment has transformed purchasing as we know it, with knock-on effects that have changed the way our market currently operates.

True disruption happens when more agile players enter the market, shaking up the way existing business models work. The idea of delayed payments is not novel. Credit cards have existed for years. However, following the financial crisis, people became wary of traditional financial services with surging interest rates and fees; consumers became increasingly informed and began to fear the possibility of becoming revolvers (people who continuously pay off only the interest charges on an outstanding loan or debt). This drove them away from credit cards and opened up opportunities for the BNPL market to grow.

BNPL is shaping the future of digital payments globally, and across the region. The relationship between payment methods and consumer shopping behaviour is intrinsic, with both working in tandem to form our digital payment landscape.

In the last few years, the digital payment landscape has transformed significantly and BNPL has been fuelled by the growth of e-commerce. In 2020, the phenomenon became the fastest growing e-commerce payment method globally, predicted to account for nine per cent of all e-commerce payments in EMEA by 2023. As the pandemic endured, our worlds moved online, amplifying e-commerce adoption across the globe. In fact, in the Middle East alone, 50 per cent more consumers are shopping online than before the pandemic. For companies operating in the e-commerce space, this digital shift presented the chance to adapt, innovate and grow.

This is where BNPL came in, offering the ability to add value for consumers and merchants in the e-commerce industry at a time when they needed it most. Naturally, the idea of delayed payments became attractive during the pandemic due to a widespread sentiment of financial uncertainty. With BNPL platforms, consumers were able to keep buying but now had the option to pay instalments to maintain their personal cash flow at no extra cost. Furthermore, the model provided relief from cash-on-delivery (COD) payments, which accounted for more than 60 per cent of e-commerce sales in the region pre-pandemic. With the new model, customers get what they want today and pay in three automated interest-free and fee-free instalments through secure payment gateways, mitigating the stress of payment collections for merchants. Not to mention, BNPL platforms can also enable merchants to improve conversion rates, increase basket sizes and enhance repeat purchase rates. How?

BNPL essentially addresses today’s consumer’s most common dilemma — the desire for instant gratification, curbed by the inability to pay upfront. BNPL strikes the balance between the immediacy of purchase and the need for long-term budgeting so that customers are actually buying more but feeling much better about it as they can spread the payment over time with absolutely no interest and no fees. This trend is directly driving conversion and increasing basket sizes at checkout. In turn, consumers are then building loyalty towards merchants that integrate BNPL payment options.

The cost of BNPL is borne by the retailers, as they experience sharp increases in conversion rates and average order values. I have seen, first-hand, the impact BNPL has. Retailers pay a premium over a normal payment gateway as BNPL brings with it top-line impact and a strong repeat customer base.

Essentially, it empowers the customer through interest-free and fee-free instalment plans, with 100 per cent transparency. In my experience, consumers really do value this service as it helps to foster financial freedom, particularly in a decade characterised by economic instability. In addition, many customers use BNPL apps as budgeting tools to manage payments over a period of time.

The apps strive to empower customers by enabling them to purchase what they can truly afford and at the same time not fall into a debt trap (as customers are capped to certain amounts and number of transactions). BNPL addresses the new generation’s purchasing behaviour. That's why more consumers are gravitating towards it as their preferred payment method. Currently, over 60 per cent of Millennials do not have credit cards under their name. Millennials and Gen Z consumers are key audiences for BNPL platforms. They make money and they want to spend it, however, they are also increasingly informed and take precautions to budget. That’s why about 67 per cent of Millennials are currently using BNPL services. Not only do these platforms resonate with the consumer’s personal experience, but they also act as a mechanism to drive e-commerce growth in the region and support merchants to survive, and even thrive, in the face of a pandemic.

As we move forward, it’s evident BNPL is here to stay. Key global players have taken interest in the regional market with homegrown players. As the digital payment landscape grows, BNPL will become the norm across e-commerce platforms. The Buy Now, Pay Later revolution is here — and it’s time for consumers, and merchants, to join and reap the benefits.