[…]Buy now, pay later (BNPL) is an increasingly popular payment method, allowing customers to spread payment into interest-free installments over a few weeks or months. Worldwide BNPL spending was $316 billion in 2023 and is expected to grow to $450 billion by 2027. With major retailers such as Walmart and H&M partnering with BNPL providers like Affirm, Klarna, and Afterpay, over 45 million U.S. customers have adopted this payment method.
When customers choose BNPL installments at the checkout of a participating retailer, the bill is paid in full by the BNPL provider to the retailer. Customers pay the BNPL provider for the first installment at the time of purchase and repay the remaining interest-free installments over a short time period.
However, despite the growing popularity of BNPL installment payments, little is known about their impact on retail sales.
In this new study, the researchers use transactional data from a major U.S. retailer and find that BNPL installment payments boost spending. By allowing customers to pay for purchases in smaller, interest-free installments, BNPL boosts both the number of purchases and the average amount spent.
The study compares BNPL installment payments to upfront and delayed lump sum payments. BNPL consistently boosts spending across various products (e.g., party supplies, apparel, flights, mugs, coffee pods) and number of installments (e.g., three installments, four installments, six installments).
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This research offers actionable insights for various stakeholders:
- Consumers can benefit by using BNPL installments as a tool for managing expenses by making them feel more in control of their budgets and less financially constrained.
- Retail managers should consider integrating BNPL options to boost sales. Ang says that “Retailers benefit because adoption of installment payments leads to more frequent purchases and larger basket amounts. The difference is significant, with an increase in purchase incidence of approximately 9% and a relative increase in purchase amounts of approximately 10%.”
- Policymakers need to be aware of the significant impact BNPL has on consumer spending to ensure regulations that protect consumers while fostering financial flexibility.
- Societal stakeholders, including consumer advocates, should monitor BNPL’s growing influence to promote responsible spending practices.
Understanding the benefits and potential risks associated with BNPL is crucial as this payment method continues to reshape the retail landscape.
More information: Stijn Maesen et al, Buy Now, Pay Later: Impact of Installment Payments on Customer Purchases, Journal of Marketing (2024). DOI: 10.1177/00222429241282414
Source: Buy now, pay later installment payments increase retail spending, study finds
Robin Edgar
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