Excitement for buy now, pay later options grows as younger consumers seek flexible, no-interest payment options

Enterprise retailers that understand how and why younger consumers use credit are hard-pressed to find reasons against offering buy now, pay later.

Younger consumers’ credit usage driven by life-stage

The new research also found that merchants miss out by assuming that younger generations (people between the ages of 18 and 39) are credit-shy. Instead, survey results show that younger consumers use credit, and they warm to credit as they become more financially independent. Forty-eight percent of Gen Z, 60% of younger Millennials, and 69% of older Millennials said they are comfortable/extremely comfortable using credit.*

Not only are younger consumers using credit, but they also use it frequently. More than half of all younger consumers — 85% of older Millennials, 75% of younger Millennials, and 67% of Gen Z respondents — report using credit in the last week. While debit cards are a more likely payment option for Gen Z, 4 out of 10 expect that their credit usage will increase in the next year.*

The bottom line is that credit usage has less to do with generational characteristics and more to do with where younger consumers are at in their lives. Additionally, younger consumers are looking for compelling benefits when they use credit and are drawn to options that offer rewards and good interest rates: 72% of younger consumers said they are more likely to open a credit account if it offers little to no interest on certain purchases. Younger consumers especially love BNPL options for big-ticket items, with roughly 7 out of 10 noting they are likely to use a BNPL solution to buy furniture or an item that costs more than $1,000.*

Enterprise retailers misjudge consumer payment preferences — and risk losing buyers

Retailers underestimate the influence of no-interest payment options: the ability to pay no interest for a period of time is the top reason younger consumers say they use BNPL solutions, according to the study. This defies the belief that the main reason younger consumers use BNPL is to pay in installments.*

The lack of understanding around consumers’ credit preferences, coupled with the misconception that consumers do not understand how BNPL works, keeps many B2C retailers from promoting simple financing solutions. Younger consumers do understand how financing works per Forrester’s findings, pointing to a need for more BNPL payment options.*

Buy now, pay later can position merchants for long-term benefits

Forrester found that consumers between the ages 18 and 39 are smart about finances and are considering how credit can best serve them. Not only do BNPL solutions produce higher sales volumes, but companies with a BNPL solution report it produces on average 21% of sales.*

Large retailers should take note, especially as more than half (56%) of respondents from companies that don’t currently have a BNPL solution said their organization plans to invest in one in the next year.*

Key recommendations

BNPL solutions are becoming table stakes for consumers and merchants, and the COVID-19 pandemic has accelerated this trend. Consumer interest and familiarity with BNPL solutions are increasing, and many merchants are investing in BNPL solutions to meet consumer demand and to reap the benefits of higher sales volumes.*

• To attract younger consumers, merchants need a BNPL solution. Consumers, especially younger ones, increasingly want to pay for large purchases in a responsible way over time. Millennials (ages 23 to 39) are more likely to consider BNPL options compared to Gen Z (ages 18 to 22). This reflects their life stages, purchasing needs, earning capacity, and confidence using credit.*
• Merchants’ BNPL solutions need a no interest option. Paying no interest is one of the top reasons that consumers between the ages 18 and 39 apply for credit, and it’s the top reason they consider using credit solutions like BNPL. Merchants looking to attract younger consumers and to invest in a BNPL solution should look for one that has a no interest option.*
• Merchants need to promote the benefits of BNPL solutions to younger consumers. BNPL is still a newer form of credit compared to credit cards, but awareness is growing. It’s clear that consumers are attracted to the benefits — especially no-interest options. But to increase usage of BNPL, merchants need to do more to promote these benefits to younger consumers both before and during the point of sale.*

How PayPal works with retailers to reach next-gen consumers

PayPal works with enterprise retailers to achieve these objectives while better serving younger consumers. PayPal’s Pay in 4*, part of our global pay later offerings, provides the flexible financing options retailers need to accommodate shifting consumer preferences and boost the bottom line.

PayPal Checkout converts 82 percent higher on average than a checkout without PayPal, and PayPal’s global pay later solutions have driven a greater than 2x average order volume (AOV), when compared to PayPal’s standard AOV. (Please note that product offerings and structure vary by region.) Merchants see a 12% increase in weekly total payment volume (TPV) post-adoption of PayPal’s buy now, pay later messaging, and 40% of U.S. customers return to complete 2+ transactions with Pay Later.*

Pay in 4 is available at millions of online merchants where PayPal is offered and brings the consistency, security, and reliability of the PayPal mark to give consumers peace of mind.

For more information about the Forrester Consulting thought leadership paper commissioned by PayPal, download the report or reach out to our team.