Will Buy Now, Pay Later Dominate Future Retail Sales?

As inflation causes retail prices to rise on most products, consumers are looking for an easy, flexible way to afford big ticket items they need or want to purchase.

With prices on products rising, people may find their credit card balances and interest payments growing along with inflation. Financial institutions and merchants in recent years have been expanding the use of buy now, pay later programs for consumers that have been gaining in popularity.

Under the typical BNPL plan, a customer purchases a product online, and in some cases instore, with a minimum and maximum sale amount. The customer then makes periodic payments that could be weekly, every two weeks, maybe monthly and in at least one case, up to a year. The payment plan is usually interest free with the only fees being late fees.

Popular Buy Now, Pay Later Services

The most popular buy now, pay later services among users have been PayPal  (PYPL) – Get PayPal Holdings, Inc. Report, Afterpay, Affirm  (AFRM) – Get Affirm Holdings, Inc. Class A Report, Klarna and Zip Pay, according to a survey in 2021 of 2,005 online customers by C+R Research.

PayPal’s Pay in 4 BNPL service partners with millions of online retailers, including Target  (TGT) – Get Target Corporation Report, Best Buy  (BBY) – Get Best Buy Co., Inc. Report, Tapestry’s  (TPR) – Get Tapestry, Inc. Report Coach , Uni Qlo, and Bad Bath & Beyond  (BBBY) – Get Bed Bath & Beyond Inc. Report. Afterpay has BNPL partnerships with over 100,000 retailers such as Rite Aid  (RAD) – Get Rite Aid Corporation Report, Nordstrom  (JWN) – Get Nordstrom, Inc. Report, Calvin Klein and Tommy Hilfiger. Affirm’s retail partnerships are also some of the biggest as well, including Amazon  (AMZN) – Get Amazon.com, Inc. Report, Target and Walmart  (WMT) – Get Walmart Inc. Report. Klarna’s retail partners include Macy’s, H&M, Coach, Abercrombie & Fitch  (ANF) – Get Abercrombie & Fitch Co. Class A Report, Saks Fifth Avenue SKS. Zip’s retail partnerships include Best Buy, Apple  (AAPL) – Get Apple Inc. Report, Nike  (NKE) – Get NIKE, Inc. Class B Report, Reebok and Adidas.

Most BNPL plans are similar. PayPal, Afterpay, Klarna and Zip require a payment at checkout. Affirm is a little different in that it has longer repayment plans of up to 12 months, negotiates interest rates and doesn’t charge late fees.

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An example of one these buy now, pay later plans involves electronics and appliance retailer Best Buy, which teams with BNPL partner Zip. Under Best Buy’s BNPL plan with Zip, customers using the Best Buy app or on desktop pay 25% of the product cost upfront then the remainder is paid in four installments over six weeks. No fees are charged at checkout. The only fees charged by Zip are lates fees that range from $5, $7 or $10 depending on state of residence. No interest is charged. The plan is not available for instore purchases.

Recent surveys show that demand for BNPL services is growing among consumers. The global buy now, pay later market size in 2021 was $5.1 billion, according to report by Grand View Research, and it is expected to increase to $6.2 billion by the end of 2022.

Fashion and Garment Sector Hottest

The global market size is also expected to increase to $39.41 billion by 2030, according to a May 3 Grand View Research statement. That massive increase amounts to a 26% compound annual growth rate, the report said.

The BNPL market in the U.S. was $1.4 billion in 2021 and is expected to register a 24.3% compound annual growth rate from 2022 to 2030.

The hottest retail sector over the forecast period is expected to be fashion and garment segment, which should register the fastest growth, the report said.