A new wave of installment payment services — called “Buy Now Pay Later” (BNPL) platforms — is becoming increasingly popular online. The service enables shoppers to pay for items in multiple manageable-sized chunks (e.g., 4 equal payments over the course of 6 weeks) instead of paying the total upfront at the time of purchase. Think of it as store-based “layaway” reincarnated for online shopping.
Walmart introduced installment payments in 2019, in partnership with BNPL provider Affirm. Amazon joined the BNPL fray in August 2021, also inking a deal with Affirm. Now, Target becomes the latest retailer to play in the pay-in-installments space, partnering with both Affirm and Sezzle, another BNPL provider. (Other providers include Square-owned Afterpay and Klarna).
Data reported by Klarna offers a compelling argument for retailers offering a BNPL option:
+45% increase in average order value
+35% increase in checkout conversions
BNPL adds fuel to the ‘Big 3’ — Amazon vs. Walmart vs. Target — market share fire
Fundamentally, there are two ways to grow market share: (1) acquire new customers; or (2) get existing customers to spend more / buy more stuff (ideally, you want both). For Amazon, every new customer or Prime member it adds is a coup. But reality is it’s hard to keep adding new customers on top of an already huge base of 300+ million active Amazon users and 100+ million Prime members in the U.S.
So, adding BNPL options for pricier items ($50+ at Amazon; $100+ at Target) is one more way for retailers to capture more share of wallet from shoppers. In fact, studies have shown that when consumers pay in installments, they typically spend more. And last year, 44% of consumers said the use of BNPL was somewhat or very important in determining how much they spend during the holidays.
BNPL is likely to attract two key shopper segments
While installment payment options likely hold appeal for the masses, two shopper segments could find these new payment plans especially beneficial:
Younger shoppers. Gen-Z and younger millennials are warming up to BNPL platforms versus using traditional credit cards, which often come with high interest rates, especially for low-wage earners or those with limited credit history. Retailers and brands alike should have a strategy for building long-term relationships with these attractive shopper segments. There’s huge upside potential in terms of lifetime value (LTV) – think future spending related to household formation, home-buying, family expansion, etc.
Unbanked population. A BNPL offer could conceivably increase penetration among low-income and unbanked shoppers, a segment that Walmart historically has had a stronghold on. This could prove to be a meaningful defense mechanism in the long run for Amazon and Target.
The timing of BNPL introductions is no accident
The timing of payment plan introductions by Amazon and Target couldn’t be more on point as (1) the all-important holiday season draws near; and (2) price inflation continues to climb.
More than ever, consumers likely will give their business to retailers they feel are looking out for them. Deploying BNPL technology looks to fit the bill:
It’s easy to use, with the option seamlessly built into the checkout experience
Shoppers actually could fine it a more convenient and cheaper option than using interest-bearing credit cards
So what? Now what? What it means for brands
The growing roster of retailers offering BNPL as a payment alternative online is good news for brands selling big ticket-type items — think categories such as electronics, furniture, home & kitchen appliances, sporting goods and toys, among others. Installment payment plan options could help increase your conversion and sales. It also could mean less price discounting, since customers can pay in smaller, more digestible chunks using BNPL. So, make sure you’re positioned to capitalize.
Here are a few tips to prepare your digital shelf for the upcoming holidays:
Monitor your product detail pages to ensure all content is complete, correct and compelling. Our research shows brands can lift sales by 15%-58%, on average (on Amazon) when content is added or improved to meet category bestseller benchmark standards.
Optimize your content to improve organic search ranking. And importantly, track your search placement to make sure you show up on page 1, and better yet, at or near the top of page 1. Our research shows that moving from page 2 to a top 10 spot (organically) can almost double your sales.
Review your paid search strategy. You may want to consider investing to get a sponsored slot on page 1 as we head into the all-important holiday season.
Learn how you can get the eCommerce data and performance analytics you need to monitor the digital shelf and adjust your seasonal event strategies in real time. Contact us.