Despite reports that the use of buy now, pay later (BNPL) is beginning to slow, new research reveals that consumers continue to access credit at the point of sale.
According to Barclays Bank and debt management charity StepChange, the average BNPL user repaid 4.8 purchases in June 2022, almost double the estimate of a similar study conducted in February (2 ,6 purchases per customer).
While this type of credit has until now been associated with low-cost retail purchases, it’s becoming popular for big-ticket expenses like car repairs or vacations. Familiarity with BNPL – an estimated 17 million Britons have used the services – means other industries are now offering the cash-on-cash option.
“The rise of BNPL as a preferred payment method will lead to more non-commercial businesses presenting it as an option at checkout,” says Amy Gavin, chief competitor strategist at fintech consultancy 11:FS.
Travel and hospitality in particular have seen adoption levels increase. National Express recently announced a partnership with Clearpay, while Booking.com and Hotels.com now offer Klarna at checkout.
This could be partly due to the effect of the pandemic on consumer priorities. Even with a bleak economic outlook, interest in travel remains strong. A study by travel technology company Amadeus found travel to be the top priority for consumer discretionary spending over the next 12 months. Some 42% of respondents said overseas travel was a high priority, and a further 32% expressed interest in domestic holidays, eclipsing dining out, home renovations or big-ticket items like a new car. Three-quarters of those who took the survey were open to using BNPL to fund their holidays.
“The travel industry has a strong use case for BNPL and suppliers have been quick to latch onto it to increase conversion rates and average spend per customer,” says Gavin. “Especially as the current pressure on disposable income is likely to limit customers’ ability to prepay for high-value travel.”
Although there has recently been an increase in adoption over the past 12 months, BNPL for travel is not an entirely new phenomenon. AeroMexico uses the services of specialist travel provider BNPL Uplift at checkout. Customers have the option to purchase with no upfront cost and then select a repayment plan for up to 12 months.
“Implementing BNPL was part of our payments evolution, to provide our customers with more comprehensive payment options,” says Daniel Reyes Vega, Director of Digital Solutions at AeroMexico. “When we started the conversations five years ago, very few marketers in retail or any other industry were offering this product.”
Reyes Vega reports that revenue from Uplift more than doubled in 2022, and clients using BNPL are 25% more likely to return. “We see Uplift not just as a payment option, but as a marketing and revenue-generating tool. We partner with campaigns and use bottom-up marketing to reach our customers more effectively,” he says. Later this year, AeroMexico will implement a 0% APR offer and a “fly now, pay later” estimation tool through Uplift. Reyes Vega believes this will allow sales to “grow despite the current economic situation”.
The impact of the recession on buying habits
Even with such deals, the likelihood of a global recession means many will have to rethink their spending. As budgets tighten, sudden and invisible expenses become more detrimental to finances, leading consumers to access BNPL’s services for transactions such as home or car repairs.
“I bet the impending recession will lead to increased reliance on BNPL among consumers in general, potentially more for some non-retail purchases,” Gavin says. “It’s a relatively easy choice for someone to avoid going into debt to buy a pair of sneakers, but not so easy to avoid funding necessities like car repairs or medical care when you’re not. don’t have the money readily available.”
Boiler and air conditioning supplier Boxt offers various credit options at checkout through the white label payment solution Divido. Its interest-free offer, available for repayment over 12 to 24 months, has doubled in popularity since its launch in 2017 and accounts for 40% of total business.
“This growth was driven in part by the impacts of the pandemic in terms of financial stress and changing attitudes towards BNPL and in part by our interest-free plans launched that year,” says Andy Kerr, Founder and CEO of Boxt.
Not surprisingly, Boxt predicts that customers will need help with all aspects of their energy costs over the next few years. As they explore other options to help customers with rising costs, interest-free credit will be an integral part of the offer.
“Given the energy crisis, cost of living pressures and generally bleak economic outlook, we expect the proportion of our customers choosing to spread out payments with a flexible financing plan to increase over the next two years. It will be important to offer credit for expensive items,” says Kerr.
What does the financing of these operations mean for BNPL companies? As Gavin points out, these lenders haven’t had to look closely at customers, since expenses are often relatively low.
“BNL companies generally don’t do rigorous credit checks, which means a significant credit risk for companies lending money to people who might not be able to repay it,” she says.
But some space players are starting to change their processes, ahead of tougher regulations expected to be introduced in 2024.
“BNPL companies are changing the way they work from a risk perspective, as shown by Klarna’s recent decision to start reporting transactions to credit reference agencies. Laybuy already shares its payment data with Experian, which means that transactions show up on customers’ credit records,” says Gavin.
“This is designed to improve the accuracy of customer credit scores and help lenders make more informed decisions about the supply of credit.”