Last year saw a remarkable surge in the adoption of Buy Now, Pay Later (BNPL) transactions in global markets, with an ever-increasing amount of consumers choosing to use the alternative financing method to commit to a purchase and pay it over time, often without interest. In the United States alone, more than one in three consumers used BNPL methods at least once last year, mirroring a similar trend across European and African countries. What’s certain is that BNPL has moved from once being considered a niche payment option to becoming an Alternative Payment Method (APM) that consumers in certain industries increasingly look for during checkouts. 

As 2024 unfolds, both the demand and impact of BNPL methods are anticipated to grow even further and reach more consumers and industries, with market forecasts predicting a potential 10-15 times growth in BNPL transactions by 2025, a testament to its growth impact on the global payment ecosystem. 

This article will detail the key points merchants need to know if they are considering adopting this new payment method and feeds into our ongoing series on the most popular APMs around the world, which has explored the most demanded transaction methods across Europe, Asia, South America, Africa and gone in-depth on how new technologies like Open Banking are making an impact, while evaluating the longevity of traditional cash-based methods too.

Breaking Free from E-commerce: BNPL’s Expanding Horizons

Once primarily associated with online retail, BNPL is making significant inroads into various other sectors, offering new opportunities for both consumers and merchants. Its growth, particularly notable in industries such as technology, travel, and various service-based online marketplaces, illustrates its increasing appeal across a broad spectrum of consumers. 

This trend is closely connected to evolving consumer spending behaviors, especially among younger demographics who show a clear preference for more flexible payment options that aid in effective budget management. For instance, consider a young consumer capable of purchasing a high-end smartphone outright; increasingly, they opt for installment payments through BNPL, especially when these plans come with zero interest - provided payments are made on time. 

BNPL resonates with a more modern financial approach, offering a controlled and planned spending strategy, which is particularly attractive to those wary of traditional credit’s potential for incurring debt, making it a favored choice among financial-conscious consumers. (For a more in-depth analysis of how FinTech’s are challenging banks in offering access to immediate credit during the checkout process, read this Bloomberg article).

Strategic BNPL Integration for Merchants

For merchants looking to adopt BNPL solutions, there are several considerations they should consider. This includes factors such as the associated costs and fees of various BNPL providers, the ease at which they can integrate this APM into their existing payment solution, and fundamentally to have a coherent methodology of accessing their own consumer preferences to see whether a BNPL solution will benefit their business in the medium-to-long term. 

• Costs and Fees of BNPL Providers: Popular providers typically charge merchants transaction fees ranging from 2% to 8%, with variations based on whether it is a zero-interest plan (which impacts consumer appeal), what the settlement period may be, and what late payment penalties for consumers may be - with some providers charging a flat fee, while others a percentage of the purchasing amount. 
• Ease of Integration: Most BNPL solutions have APIs and SDKs that easily integrate with popular payment platforms and gateways, however, have varying levels of technical and customer support available. 

• Understanding Conversion Rate Impacts: Typically BNPL solutions enhance conversion rates for online merchants, as higher-priced goods and services are accessible to more customers. Having access to detailed financial reporting from providers is essential for merchants to determine their own customer trends and payment success rates. 

Incorporating BNPL into a payment strategy is a significant decision for merchants. Understanding these key aspects helps in making an informed choice that aligns with both consumer preferences and the merchant's financial objectives.

Key Takeaways to Navigating Payments

The increasing prominence of BNPL solutions is just one of many payment trends that merchants should be aware of, alongside an ever growing list of popular APMs that consumers are increasingly guided to as they seek out the best transaction methods for their needs. 

As a payment technology firm with its own payment orchestration platform, Praxis Tech is dedicated to supporting merchants to integrate various alternative payment solutions into their checkout experiences, with pre-integrated support for more than a thousand solutions and over five hundred Payment Service Providers across the globe. Contact us to learn more about how we can support your business’ payment strategy and operations.