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3 Reasons BNPL Is the Credit Card of the 21st Century

Jason Finkelstein

CMO @ AdRoll

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Did you know the first-ever credit card dates back to 1950 when businessman Frank McNamara paid for a meal in New York with a small cardboard card, later known as a Diners Club Card? The concept didn’t take long to catch on. Three years later, it was accepted internationally. By 1959, Diners Club boasted 1 million users.

Now, we’re seeing a similar shift in payment preference. It’s called Buy Now Pay Later (BNPL).

Today, the average U.S. household carries nearly $7,500 in credit card debt and pays around $1,200 a year in interest. Meanwhile, millennials in the class of 2018 graduated with nearly $30,000 in student loan debt. So it’s no wonder younger consumers are desperate for ways to avoid additional debt, and are gravitating toward a new and innovative payment method for goods and services that promises just that.

Interestingly enough, BNPL offers plenty of advantages for retailers, too. 


BNPL enables shoppers to buy what they want and pay off the purchase price in interest-free installments over a relatively short window. Consumers apply and receive instant notification of approval (or not) at checkout in both digital and physical retail stores. Generally speaking, users don’t get hit with fees as long as they make payments on time, offering a huge advantage over credit cards.

Like those traditional plastic cards, retailers that accept BNPL receive payment upfront through the third-party service provider, much like they would from a card issuer. From there, it’s up to the payment service provider to ensure payment from the customer. In return, merchants pay a fee that varies from about 2% to 5% of the overall purchase price. Of course, the rationale is that with BNPL, merchants close more sales of bigger ticket items which more than offsets the fee.

Unlike another familiar installment option like layaway, BNPL offers instant gratification to consumers, allowing them to take their purchases home right away. It also entices customers to buy big ticket items by reducing sticker shock. In fact, a recent study shows electronics are the most common product purchased via BNPL.

And so the payment method is starting to gain steam, particularly among younger consumers, including millennial and Gen Z shoppers. Case in point: the study shows more than one-third of U.S. consumers have tried BNPL as of July 2020. (However, it also states the usage increase could be attributable at least in part to income loss during the pandemic.)

But it’s not all a bed of roses.

For example, users who do not make on-time payments will see their credit scores drop. They may also get hit with hefty fees and interest, so they must understand what they’re signing up for from the very beginning. But given data on consumer usage, it appears most shoppers are using BNPL sparingly at once a year or less, followed by once every three or six months. 

The Connection Between D2C and BNPL

For retailers — including D2C brands competing with larger, more established counterparts — the additional payment option offers an opportunity. Here’s how: 

Convert more customers

In many ways, BNPL benefits both vendors and customers because the latter is more likely to complete a sale.

As Melissa Davis, global chief revenue officer at BNPL provider Afterpay, pointed out, price is a big psychological barrier for consumers. That’s why they abandon $18 billion worth of goods in online shopping carts each year. But research shows that retailers offering BNPL see less of a drop in cart abandonment. By providing choice and flexibility, and displaying a price breakdown on product pages, retailers increase conversions. What’s more, combining BNPL with other strategies — specifically, retargeting — gives D2C marketers an even more powerful way to deter cart abandonment.

Sell more products

Reduced sticker shock nudges customers toward buying more than they would otherwise — including impulse buys, driving up the overall order value. In fact, Davis said retailers that work with Afterpay have seen conversion rates of about 20% to 30% higher than other payment methods, along with a 50% to 200% increase in units per transaction. 

That’s great news for retailers trying to move inventory. 

Enhance the customer experience

Offering an additional payment method also demonstrates a brand is responding to shoppers’ needs in a way that makes their overall experience better. Some BNPL providers even integrate with shoppers’ phones, meaning it becomes a contact-free way to conduct transactions at a time when consumers are looking to reduce unnecessary contact. In this way, the brand becomes a trusted partner with safe and flexible payment options. Eventually, this can translate to enhanced loyalty and sales.

Given consumer and retailer interest in BNPL, there is certainly no shortage of options. Though the ideal partner will undoubtedly vary by brand, here are seven worth considering, ranked by availability and adoption rates:

  1. Klarna: Servicing approximately 85 million shoppers across 17 countries and more than 200,000 merchants, BNPL is just one option from financial services firm Klarna. The platform says it sees 1 million transactions daily with payment methods like four installments and a 30-day window. It, too, integrates with widely used e-commerce platforms and payment providers to make integration easy.
  2. Affirm: This platform seeks to help consumers make purchases while keeping them out of debt. It offers transparency into cost and flexible payment options with no late fees or penalties. Affirm has a solution specifically catered to merchants with less than $5 million in annual revenue (and those with more). To get started, they answer a few questions about their business, choose the right solution, and then Affirm integrates the service in less than an hour.
  3. Afterpay: Another credit card alternative focused on responsible consumer spending, Afterpay integrates with popular ecommerce platforms like Shopify, Magento, WooCommerce, and Salesforce Commerce Cloud, making it a fairly simple transition for retail partners.
  4. PayPal’s Pay in 4: Coming this holiday season, Pay in 4 is a BNPL solution for U.S.-based e-commerce platforms and marketplaces, which offers shoppers four interest-free installment payments for purchases between $30 and $600.
  5. Bread: This BNPL offering enables shoppers to pre-qualify in seconds and check out from anywhere on a retailers’ site. It also displays dynamic “as low as” pricing based on a particular shopper’s personalized per-month cost. And Bread, too, integrates directly with many ecommerce platforms, such as those listed above, so it’s relatively easy to get started. Bread also offers an API to support homegrown solutions for retailers who don’t work with big platforms.
  6. QuadPay: As its name implies, QuadPay allows shoppers to split any payment into four installments over six weeks. It, too, boasts easy integration with a host of plugins for e-commerce platforms, such as Shopify, Magento, BigCommerce, and Oracle Commerce.
  7. Sezzle: This BNPL choice also splits customer orders into four payments over six weeks, working with 16,000 online retailers. Sezzle offers an API, as well as plugins with e-commerce platforms like Magento, Shopify, WooCommerce, 3DCart, and CyberSource. 

The Credit Card of the Future

Customer options have increased tremendously since 1950 — and behavior has changed drastically as a result. Along the way, we’ve witnessed new ways to procure goods and services, and now we’re seeing new ways to pay for them. 

Though there may be a mental hurdle among retailers when it comes to integrating a new payment option, research shows it’s worth the time and investment as the long-term advantages are clear for both retailers and consumers. 

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