Buy now, pay later – a modern business model in fashion e-commerce

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Buy now pay later business model

In our article about trends in fashion e-commerce, you could read that the buy now, pay later option is becoming more and more popular in this sector. In fact, in our opinion, it’s one of the most interesting fashion e-commerce trends. That’s why we decided to devote a whole article just to it. Perhaps you will soon decide to offer instalment payments as well? As you will shortly see, it can be a very beneficial decision.

Many customers generally associate instalments with expensive products like vehicles, electronics, and sporting equipment. And that's true; before 2016, the buy now, pay later model wasn't even a thing, and just a few customers even knew about it (it had less than 0.5% of market share). However, things change.

With the pandemic going on and new sales models emerging every month, we see services that even several years ago seemed unlikely. Today, more and more often, customers want to buy products in the convenient way that buy now, pay later makes accessible, even when it comes to cheaper products. That refers primarily to the fashion industry. Let's see how buy now, pay later works here.

The popularity of the BNPL model

When you take a look at the market share of BNPL in domestic e-commerce payments, you will see rapid growth. According to Statista.com, in 2016, this form of online payment accounted for just 0.4% of the market. In 2019, it was 1.6%, and in 2020 – 2.1%. Of course, it's a relatively new trend, so we can't expect to see two-digit figures here, but sooner or later, we'll get there, too.

In March 2021, The Ascent published a comprehensive study analyzing this form of payment. As it happens, we can talk about serious growth, especially in two age groups:

  • 18-24: 62% growth
  • 54+: 98% growth (!)

buy-now-pay-later-statistics

Image source: Fool.com

Of course, this growth is clearly visible in other age groups, but it's a bit less profound there. Without a doubt, BNPL grows. And if you're not sure about that, here are some additional statistics that are worth quoting:

  • 53% of respondents who have never used BNPL say they're at least somewhat likely to use it within the next year.
  • The most common reason to use buy now, pay later services is to make purchases that don't fit in one's budget (45% of answers).
  • 36% of buy now, pay later users use BNPL once a month or more.
  • 64% of buy now, pay later users have used it more since the beginning of the pandemic

These numbers tell one story – buy now, pay later gets traction, and most likely, the popularity of this form of online payment will only grow. Especially given that the majority of BNPL operators charge no interest rates and sometimes even no fees for late payments! Take a look at this comparison:

buy-now-pay-later-companies

Image source: Fool.com

Providers of the buy now, pay later payments

There are several companies offering BNPL services on the market. In our article about fashion e-commerce trends, we mentioned Klarna. It's a service that's popular in the fashion sector but by no means the only one. Here's the list of the eight most popular BNPL providers (based on the data from the US):

buy-now-pay-later-services

Image source: Fool.com

As you can see, with slightly over 33% of the American market share, Klarna occupies third place. In fact, Klarna offers a number of diverse payment options, including direct payments, pay after delivery, and installments plans. Their most popular service is a payment in four interest-free installments. This approach is clearly effective. Globally, Klarna has over 140 million users (7,9M in the United States alone [Statista]), is available in 45 countries, and they work with over 400,000 online retailers[Klarna].

And what about PayPal – America's favorite way to pay online? Last year, they had over 43% of the American BNPL market share. PayPal also offers four interest-free payments and, according to their website, millions of online stores accept their Pay in 4 service. It's really simple to use, too. All you have to do is select an item that you want to buy and opt for the Pay in 4 option. The app will provide you with information about installments and their due dates. Here's how it looks:

paypal-buy-now-pay-later

Image source: PayPal

Other companies that offer BNPL payments comprise:

In general, the service doesn’t vary very much between companies. They try to stand out by:

  • Providing additional special offers (e.g., Afterpay offers extra discounts and the possibility to win prizes)
  • Offering other financial services (for example, Affirm offers the Debit+™ card for everyday shopping)
  • Concentrating on a specific message (Sezzle emphasizes cooperation with planet-driven brands).

Why instalments are popular in fashion e-commerce

Partly, the answer lies in the scale. Fashion is by far one of the most popular e-commerce categories ever. In Europe alone, over 170 million customers buy clothing and footwear (data from 2020):

top-categories-among-european-online-shoppers

Image source: The E-commerce in Europe 2020 report 

It’s the same story in the United States. According to Statista.com, the e-commerce fashion CAGR is expected to reach 14.2% between 2017 and 2025, with the industry reaching a $672.71 billion valuation by 2023 [Shopify]. Because clothing comprises the majority of our shopping, it’s natural that the BNPL model will be exploited mostly in this market sector.

Secondly, prices all over the world go up, and our salaries struggle to keep up. As a result, from our wallets' perspective, it's easier to pay 20 dollars four times than 80 dollars at once. And thirdly, this form of online payment is simply convenient. All users have to do is download an app and track their expenses. There are no credit scores, and the procedure is as simplified as possible.

The lesson for the e-commerce world

The growing popularity of the BNPL model allows us to draw two valuable conclusions:

  • People are interested in flexible and convenient forms of online payments
  • It is probable that shortly we'll see even more new and creative ways to shop online, not necessarily payment-wise.

If you want to grow your online business and attract more customers:

  1. Concentrate on providing them with convenient ways to pay
  2. Observe market trends carefully and respond to them
  3. Try to attract customers in non-standard ways

That's the best way to get ahead of your competition. And speaking of getting ahead – have you already tried to use push notifications? They work brilliantly in online trade! See our use cases and create a free account today!


Aleksandra Kozioł

Aleksandra Kozioł

Copywriter @PushPushGo

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