Data shows that Gen Z adults (people aged 18-25) are more financially educated than any previous generation. Why is this money-savvy group drawn to BNPL as an alternative to credit cards and what does this mean for online business owners?
As an easier way to make big purchases and more effectively plan cash flow over time, buy now pay later (BNPL) represents a shift in the way people think about and approach spending. Nearly 60% of consumers say they prefer buy now pay later financing options over credit cards due to the ease of set payments, the simple approval process and little or no interest charges. Despite being relatively new, BNPL financing has already become a ubiquitous presence through ecommerce, with more and more businesses offering the service to their customers. For financially conscious young consumers, the offering represents an attractive alternative to traditional credit cards. What should small businesses owners keep top of mind about BNPL options?
More appealing to a financially conscious generation
As the business landscape continues to evolve, it’s crucial that we understand and adapt to the changing priorities of our consumers. Generation Z has been shaped by economic downturns such as the recession of 2008 and a recent pandemic, making them highly attuned to financial struggles. As key players in the Financial Independence Retire Early (FIRE) movement, this demographic is debt-averse and focused on investing in their future. In fact, data from Goldman Sachs shows that 25% of adult Gen Zers hope to retire before age 55. Offering buy now pay later loan options for goods and services can attract this debt-adverse group as it offers an alternative to the credit card options that can often lead to long-term debt. By recognizing and catering to this important demographic, businesses can offer financing options that are mutually beneficial for both the retailer and Gen Z customers for long-term success.
Accessibility for those without traditional credit
As online retailers strive to provide access and opportunities for all consumers, it’s important that they also recognize the millions who are underserved or unserved by the traditional credit systems. According to TransUnion, this number exceeds 45 million in the U.S. alone. For those living in communities with limited access to credit cards or other traditional credit options, BNPL offers a viable alternative that is often more affordable and has lower-fees. Many BNPL providers utilize their own unique credit scoring algorithms that consider a broader range of factors beyond just credit history, such as employment status or income. This makes it easier for individuals without established credit histories to purchase goods and services. Offering BNPL options as an online retailer is not only smart business practice but also demonstrates a commitment to serving all communities.
Increased competition among retailers
Online retailers also share the common goal of increasing revenue and driving growth. By offering BNPL loan options, retailers can expand their payment options and attract new customers who may have previously been unable to afford their products or services. This competitive edge can help drive sales and position businesses for success in a crowded marketplace.
But it’s not just about short-term gains. Online retailers must also consider long-term strategies for increasing customer lifetime value (CLTV). BNPL financing can foster customer loyalty by providing a flexible payment option that meets their needs. By offering the ability to pay over time, customers are most likely to return for future purchases, knowing they have a reliable payment option available to them.
Looking ahead, the future of BNPL for online retailers
Thoughtful owners recognize that building a community of long-term customers requires more than just a great product – it calls for a commitment to understanding their values. As we continue into 2023, online retailers must be strategic in understanding their customers needs and values. Offering BNPL options is a smart move that not only signals a commitment to meeting the evolving demands of younger consumers, but also acknowledges that not all customers have equal access to traditional credit. By embracing innovative payment solutions like BNPL, thoughtful merchants can build strong relationships with their customer base and foster long-term loyalty. As we look toward the future of commerce, we are beginning to see that BNPL will play an important role in driving growth and building strong relationships between the consumer and the online retailer, thus allowing their businesses to thrive in an ever-changing marketplace.
Jordan Gal is a passionate and mission-driven leader who has been building transformative ecommerce solutions since 2015. He is the co-founder and CEO of Rally, the headless checkout solution that puts merchants in full control of their tech stack and increases revenue. Prior to Rally, Gal founded Carthook, a checkout solution operating exclusively on Shopify, which processed over $3B on behalf of merchants.