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Buy Now, Pay Later: The Gen Z Alternative to Credit Cards

Amid rising inflation rates, many Americans are wondering how to cut costs — and younger generations like Gen Z may have found a short-term solution with “buy now, pay later” plans. ” or BNPL. With the advent of Apple’s Pay Later offering, more attention has been paid to the BNPL market. It has become clear that retailers adopting BNPL methods see their sales increase, and that those who do not are prohibited from these new sales. But how do these solutions work, what are the risks, and how can you prepare to incorporate them into your retail experience?

BNPL: the facts

Simply put, BNPL solutions are microloans wrapped in the benefits of sleek, easy-to-use fintech. They were soon incorporated into the websites of some of the nation’s largest retailers. Along with this, they have a lower approval threshold compared to credit-backed loans. With this ease of access, they can be used for almost anything, from weekly groceries to the newest luxury items.

These plans surged in popularity during the time of the COVID-19 lockdowns, when many Americans purchased an increasing amount online. Market leaders such as Afterpay and Klarna forged new brand partnerships, and as their offerings became more visible, they quickly became an enticing option, especially for emerging Gen Z. This generation has embraced this payment option faster than any other, but looking at their history, it’s easy to see why.

Gen Z has grown up with a steady decline in the use of physical payment coupled with major advancements in fintech. Contactless payment evolved with the release of Venmo in 2009, and similar mobile solutions like Apple Wallet followed. Many shopping apps now require a registered credit card to make in-app purchases. For a generation that has no problem entering their credit cards into online forms, the idea of ​​taking out a loan online is more appealing than unnerving.

Moreover, the threshold for obtaining a BNPL loan is much lower than it would be with a traditional credit card. This makes it attractive to those with little or no credit history, or those with poor credit history. Loan repayment terms and salary increases can vary, although many BNPL solutions boast of being interest-free. Consumers can either pay by check or wire transfer, or have payments automatically deducted from their credit or debit card.

The risks

Late or missed BNPL payments have their own consequences. In some cases, this will impact a customer’s credit rating. In others, he incurs an amount of interest on the remaining payments. Some services will even suspend consumers from accessing their accounts for additional loans until their existing debt is cleared.

Despite these consequences, these loans have led to increased expenditure. A 2021 Strawhecker Group survey reported that 55% of BNPL users surveyed spend more than they would with other payment methods. Perhaps part of this can be attributed to the listed installment price included in the BNPL payment options – for example, at an online retailer, the price of a Dyson hair dryer ($430) is listed at next to “or 4 payments of $107.25 with Klarna”.

Like other lending services, BNPL solutions also need to think about how to mitigate debt risks for themselves and for the retailers that support their services. Their approaches to dealing with unpaid debts vary. Some, like Apple’s upcoming Pay Later, will have a maximum loan limit of $1,000 per user. Others allow users to take advantage of retailers’ return policies if their payments cannot be completed. Many options will also suspend a user from making future purchases with their account until the missed payments are made. These options ensure that retailers can minimize the risks associated with using these services.

The essential

So how do BNPL solutions ultimately compare to the online payments your business already uses? Both will bring conversions to your site. They are easier to obtain for those with limited or poor credit history, and most are short enough to have little or no impact on a consumer’s credit score in the future.

Whether or not to use a BNPL model is up to individual consumers, but when given the choice of implementation, the answer for retailers is clear – BNPL capabilities should be part of your online toolkit. . In addition to generating increased sales, these solutions can foster greater brand loyalty among those who use a particular service. Figure out which service best matches your consumers’ buying habits and examine what your competitors are doing. By giving consumers a new way to pay, you open the door to more sales.


Hector Pantazopoulos is the co-founder and CRO of SourceKnowledge. With over 10 years of experience in the online advertising and marketing industries, he co-founded SourceKnowledge to help e-commerce and retail brands incrementally increase sales through off-the-wall advertising. . He is an advocate for the open web and the benefits it brings to the digital marketplace. Prior to founding SourceKnowledge, Pantazopoulos served as Director of Business Development for Mamma.com, one of the world’s leading search engines. There he managed the media division and paid search distribution, which was the company’s main source of revenue. He was also an independent media consultant, specializing in monetization in the search sector.