Buy Now, Pay Later — BNPL for short — has become a core payment option for consumers. In fact, 34% of consumers say they’re considering using a BNPL loan this month, according to Lending Tree’s June 2024 BNPL Tracker.
BNPL allows consumers to make purchases and pay for them over time, operating not like a credit card but as a short-term loan of sorts. With approximately 360 million BNPL users and a growing networking of platforms, even small businesses need to consider how they can embrace this technology to acquire more customers and boost basket sizes. It’s especially urgent if your business is targeting Gen Z or millennial consumers.
To fully understand how consumers are using BNPL, especially to buy from small- and mid-sized businesses, Small Business Xchange sat down with Heawon Kim, Head of SMB and Mid-Market Partnerships for Afterpay and Cash App.
Small Business Xchange (SBX): Afterpay’s SMB merchant network grew more than 55% in 2023. What would you attribute this growth to?
Heawon Kim: BNPL use is going mainstream as consumers look for more choice and flexibility in how they spend, particularly younger generations who are credit-averse and driving most of this growth. When looking at Afterpay SMB spend, we’ve seen a strong intent to support these businesses, especially among Gen Zs whose spending has increased the most, up 11% year over year. With Gen Zs and millennials expected to account for nearly 50% of all retail spend by 2030, SMBs are adopting BNPL at a fast rate in order to service the growing demand of younger consumers who are looking for new solutions to help them budget and manage their money.
SBX: Are you finding that BNPL use is trending more in particular product categories or industries?
Kim: While fashion and beauty remain our strongest categories among Afterpay SMB spend, we’re actually seeing more consumers wanting to shop SMBs for what we’d consider traditionally big-box purchases. Currently, younger consumers are shopping SMBs across health and beauty, home and garden, arts and entertainment, hardware and electronics.
SBX: Why should SMBs venture into this world of BNPL? Which benefits and value drivers are emerging the most?
Kim: Generally, merchants experience a number of benefits from partnering with Afterpay, from driving incremental sales to increasing average order values and attracting new customers, especially within the Gen Z and millennial audience. Consumers using Afterpay are spending 40% more per transaction and spend 50% more frequently than consumers not using Afterpay.
As a whole, Afterpay drives higher merchant sales by reducing friction in the purchasing process and by giving consumers more flexibility and spending power. We’ve seen this deliver incredible value to small- and medium-sized businesses through the growth of incremental sales. According to an Oxford Economics report, Afterpay has helped generate $8.6 billion in retail sales for merchants, including SMBs.
SBX: What are SMB merchants’ typical questions or concerns about offering BNPL as a payment option? What should they be aware of before they get started?
Kim: Merchants are typically concerned about the difficulty of the tech integration to implement Afterpay at checkout. However, it is a straightforward process, and we offer a variety of integration paths to suit most ecommerce platforms.
There also is minimal risk for merchants who enable Afterpay, as we pay brands upfront for purchases made using it. Inclusive of chargebacks and fraud, there is little to no risk for merchants, allowing them to focus on growing their company and attracting new consumers.
SBX: How are you educating SMBs about how to not only effectively promote BNPL offerings but empower consumers to use it responsibly? Is this a growing issue, especially as dialogue in the fintech industry about BNPL and consumer safety evolves?
Kim: It’s important for us to educate our merchant partners that Afterpay was founded on the principle of financial inclusion, with customer protections built in. Unlike a credit card, Afterpay conducts soft credit checks, starts consumers at a low spending limit, pauses accounts after one missed repayment and caps late fees. As a result, 98% of purchases did not incur late fees, and 96% of installments were paid on time.
SBX: How are SMBs thinking about BNPL strategically as part of their evolving omnichannel businesses?
Kim: SMBs see their partnership with Afterpay as more than a payment option; it’s a way to tap into Afterpay’s engaged audience of Gen Z and millennial consumers, who expect a consistent experience from retailers they spend with — no matter the channel they’re shopping on. As an omnichannel solution, Afterpay empowers these next-gen shoppers with the ability to shop and pay flexibly, both online and in-store. Within our platform, we’ve seen repeat shopping and frequency: Afterpay omnichannel consumers spent 3X more than single-channel consumers in 2021. We also are actively supporting the growth and development of our merchant partners to help them realize business goals and increase cost efficiencies, which is particularly valuable for small- and mid-size businesses that are less likely to have time and additional resources available in-house.
SBX: What guidance would you provide to SMBs who are not sure whether BNPL makes sense for their business?
Kim: With the rapid rate of adoption for BNPL among consumers, it’s become a must-have in a merchant’s toolkit, driving higher conversion rates and fewer abandoned carts. Think of it as more than a payment option too because of the large customer base it can help you attract — those who are looking for alternatives to traditional credit when shopping and paying. Merchants can strengthen their customer loyalty by offering tech solutions like BNPL that add value or make the shopping experience better for the consumer.
