Millennials and Gen Z Shoppers Fuel Demand for Buy Now Pay Later Plans

Today’s economic climate prompts people to think of more efficient plans to pay their bills. However, younger consumers on tight budgets and those who recently entered the workforce need help to keep up with the rising cost of living. Millennials and Gen Z shoppers are turning to Buy Now Pay Later (BNPL) Plans as payment options that make buying daily necessities and big-ticket merchandise more manageable. While paying with credit cards is typically the first choice for many consumers, obtaining traditional credit’s becoming more difficult. Rising interest rates are also causing some consumers to weigh the financial benefits of paying by credit card.

• Forty-three percent of Millennials pay by credit card
• Twenty percent of Millennials use BNPL plans
• 3.8 percent of Millennials use BNPL plans for home repairs

In the past, older generations used layaway plans to divide the total cost of goods into smaller installments. Both older and younger generations are finding that Buy Now Pay Later (BNPL) plans are a popular alternative to traditional credit. Many people who use BNPL say the plan helps them make purchases that don’t fit their budgets.

Millennials and Gen Z are 75 percent of BNPL Users
While Boomers are valuable customers for hardware stores and garden centers, reaching younger demographics is essential to continue to evolve and grow. Older generations typically have more disposable income, primarily paying with cash or credit cards. Studies indicate that older populations are less enthusiastic about using BNPL plans. Yet, 75 percent of Gen Z and Millennials have used this payment method. With the popularity of BNPL plans, two-thirds of users believe that the plans will ultimately replace credit cards. According to PAYMENTS, these are the reasons consumers use BNPL plans.

• Avoid paying interest on credit cards (37 percent)
• Eliminates the need for a credit check (21 percent)
• Personal data is more secure (20 percent)
• Don’t have a credit card (14 percent)

PayPal is the Industry Leader
BNPL is a game-changing trend for retailing. In 2021, there were 326 million BNPL users globally. It’s anticipated this figure will reach 900 million by 2027. Loan approval rates rose from 69 percent in 2020 to 73 percent in 2021—a four percent increase. The Consumer Financial Protection Bureau reports usage for everyday purchases increased by 434 percent during the same period.

• Over a third of shoppers make purchases at least once per month
• The average purchase amount is $700

Regarding providers, PayPal is the industry leader with a 57 percent market share. Other key players are Afterpay (29 percent), Affirm (28 percent), Klarna (23 percent), and ZipPay (19 percent). In 2021 Amazon partnered with Affirm, offering financing on purchases of $50 or more at 0 percent APR on most purchases. Other big news in the industry revolved around the acquisition of Afterpay by Square. The $29 billion deal automatically gives current Square users access to Afterpay services.

Adoption by Small and Medium-size Businesses
Smaller businesses often believe that specific programs work best for large chains, national retailers, or e-commerce operations like Amazon. However, many small and medium-sized companies believe offering customers the opportunity to pay using a BNPL plan helps level the playing by providing easy access to credit with affordable payments. More than 25 percent of small to medium-sized businesses have adopted these services. Additionally, statistics indicate that e-commerce retailers who offer BNPL plans have a 2.19 percent higher conversion rate than operations not offering the plans.

Benefits of BNPL Plans for Hardware Stores
Competitiveness often requires retailers to move beyond their comfort level to try new ideas. Paying in cash is quickly becoming obsolete for younger generations; they want to tap and go or pay in the most convenient ways possible. Hardware operations have built a reputation for outstanding service and positive engagements with customers. Millennials and Gen X shoppers have different expectations than older shoppers. They prefer doing business with retailers who offer various payment options and avoid putting them through unnecessary changes.

Since the average purchase for BNPL transactions is $700. Offering the service is an ideal opportunity to sell more high-end grills, outdoor furniture, and power tools that consumers may hesitate to put on a high-interest credit card. It’s up to individual retailers to consider what programs work best for their business—check BNPL plans to see if they are a good fit.