Buy Now, Pay Later Is Making a Comeback
If you’re in ecommerce, you should take note
As a young girl living in a small town in Tennessee, I remember the day I learned what layaway was as if it was yesterday. Standing impatiently in the customer service line with my father at our local Walmart, waiting to exchange a faulty Barbie Baywatch Jeep — the remote control wouldn’t work and, needless to say, I was devastated — I overheard the woman ahead of us asking how many payments she had left on her layaway plan. I no doubt looked to my father for further explanation because, well, I was a nosey kid.
Fast forward to 2019, and to my surprise, Walmart still offers layaway. Who knew? But even bigger than Walmart is the 21st century revamp of traditional layaway that is taking the digital marketplace by storm, known as Buy Now, Pay Later. In 2018, online installment payments really picked up steam and ecommerce provider BigCommerce released a global survey that found that 48% of digital consumers said the availability of financing options would influence their purchase decision.
Even more notably, the study found that over one-third of those who used a financing provider for an online purchase said it allowed them to buy a more expensive product than they initially had in mind. Furthermore, 31% of the people surveyed said they wouldn’t have made a purchase at all if they didn’t have the option to pay in installments. For those of you who run an online store, whether for a large company or as your own side hustle, this is something to really take note of. 31% of the consumer market is a pretty big piece of the pie, and this number is only going to increase.
The impressive early adoption of interest-free payments online among consumers shouldn’t come as a surprise. Two of the largest online shopping groups, millennials and Gen Z, simply don’t do credit cards like the older generations that came before them. According to Experian, the average number of credit cards owned by millennials is 2.52, while the average for Gen Z is only 1.44, which is dramatically less than the average of Gen Xers and Baby Boomers. But the interest-free (not to be confused with credit) movement really made waves in Australia before hitting the shores of North America. In fact, Afterpay, one of three leading buy-now-pay-later providers servicing U.S.-based ecommerce brands, started in the land Down Under before penetrating the U.S. market in a big way.
In November of last year, the ASIC (Australian Investments and Securities Commission) released a report featuring six buy-now-pay-later providers’ data. The trends were clear: the buy-now-pay-later industry was growing, and rapidly. With 400,000 customers using the interest-free payment plan services in 2015 and over 1 million during the 2017-2018 financial year, researchers estimate the number of payment plan customers will grow by at least 2X before the end of this year (LexisNexis).
As a marketer, I am always skeptical of user numbers alone. As marketers, we know that, to benchmark success, you really have to look at user data alongside revenue. The 2018 LexisNexis report also found revenue increased in the Australian sector from $32 million in Q2 2016 to $78 million in Q2 2018. It was around this same time that new providers such as Affirm, Sezzle, and Klarna started popping up in the U.S.
We always recommend our clients provide their website visitors with an alternative payment solution. This increases conversion and can boost their revenue, especially if they offer products averaging $100+ per item. Today, many major brands are offering these options to customers, including global names such as Ray-Ban, True Religion, Milly, and more.
“Our partners in the U.S. have seen real value in connecting to the way millennials prefer to spend — a demographic who want to use their own money to budget by paying in installments, instead of using traditional credit. Retailers tell us that average order values increase because customers can purchase a higher quality item or purchase the shoes that match the dress and pay it off over a short period of time. Conversion rates increase too — our research shows that there is a 20–30% increase in customer conversion rates. Some Afterpay customers now check our website and will only shop at places that offer Afterpay. The network effects of the Afterpay platform continue to add value to our merchant partners with the company’s shop directory generating millions of retailer referrals a month, in the U.S. alone.” — Nick Molnar, Co-Founder & CEO of Afterpay
But conversion lift isn’t the only potential benefit to the addition of buy-now-pay-later options for your ecommerce site. Referral traffic increase is yet another upside to this new payment trend. In fact, one of our Shopify clients, activewear brand Electric & Rose, experienced a 16% lift in referral traffic and a 79% lift in referral revenue within 30 days of installing Afterpay on their site. Unlike other major payment installment providers, Afterpay features their clients and brands on their afterpay.com directory. According to Similar Web, this sends millions of leads to US retailers every month.
So, you may not have grown up knowing what a layaway plan is like I did — but you can sure benefit from the Buy Now, Pay Later trend that’s happening right now.