If it feels like Buy Now Pay Later (BNPL) is everywhere these days, that’s because it is.
According to research from Cornerstone Advisors, the percentage of Gen Zers in the U.S. using BNPL has grown six-fold from 6% in 2019 to 36% in 2021. Millennials’ use of BNPL has more than doubled since 2019 to 41%. Gen Xers’ adoption more than tripled. And Boomers use of BNPL has increased from 1% to 18%.
Collectively, this usage in 2021 will translate into nearly $100 billion in retail purchases — up $20 billion from 2019
Based on these numbers, it can be easy to conclude that BNPL is inevitable — I recently made that very argument myself — however, it’s important to remember that new solutions often feel that way at the beginning.
Take credit cards as an example. Today merchants’ antipathy for credit cards (interchange fees, specifically) is well-established. Yet when Bank of America introduced the modern credit card in 1958, merchants loved it and were more than happy to accept them at a 6% fee (two to three times what interchange fees are today), as Joseph Nocera relates in his book A Piece of The Action How The Middle Class Joined The Money Class:
[Kenneth] Larkin [a long-time Bank of America executive] remembers visiting a drugstore, hoping to persuade its owner to accept BankAmericard. "When I explained the concept of our credit card," he says, "the man almost knelt down and kissed my feet. 'You'll be the savior of my business,' he said. We went into his back office," Larkin continues. "He had three girls working on Burroughs bookkeeping machines, each handling 1,000 to 1,500 accounts. I looked at the size of the accounts: $4.58; $12.82. And he was sending out monthly bills on these accounts. Then the customers paid him maybe three or four months later. Think of what this man was spending on postage, labor, envelopes, stationery! His accounts receivables were dragging him under."
A store owner who accepted the card was, in effect, handing his back office headaches over to the Bank of America. The bank would guarantee him payment — within days instead of months — and would take over the role of collecting from the customers. As for the bank, in addition to taking its 6 percent cut, the card was a way to get its hooks into businessmen who were not yet Bank of America customers.
Credit cards took off, in large part, because they solved an urgent back office problem for merchants. It took a while for the problems with credit cards — for both merchants and consumers — to become clear and to motivate people to search for new solutions.
BNPL has taken off, in large part, by solving an urgent sales problem for merchants. Shopify, for example, found that one out of four merchants saw a 50% higher average order volume with its BNPL product. Consequently, merchants are happy to pay anywhere from 2% to 8% of each transaction in fees for this BNPL-powered sales lift. That’s where we are today.
However, I think it’s worth looking forward a bit and making some educated guesses on where the problems with BNPL — for merchants and consumers — may emerge because, like with credit cards, those problems will eventually drive the development of new solutions.