Most of us are familiar with the idea of financing a purchase. The majority of folks don’t have enough money lying around to pay cash for a house or even a car. But what about an exercise bike, or a pool table? You may not want to shell out $4,000 all at once, but $40 a month? This seems reasonable.
This is the general value proposition for Buy Now, Pay Later (BNPL) an industry that is currently exploding. The top BNPL companies have seen nearly a 50% year over year install rate on their apps while monthly active users have climbed 186%. What’s the reason for this growth? Think of it as an alternative to a credit card. While credit cards typically come with heavy interest payments, BNPL tends to schedule out a fixed monthly payment that stays the same for a long enough period of time to pay off the amount. Some brands such as Peloton have partnered with BNPL players to provide a financing option that effectively prices their items identically to the cash option.
With 40% of millennials and a whopping 60% of Gen Xers already using the service, it makes sense for brands to be messaging BNPL partnerships, especially with the ascendant buying power and (perhaps) limited credit of age demographic groups like the under 30 Gen Z.
The annual expenditure of BNPL volume is expected to reach $680 by 2025. Are you sold yet? What if we break it into smaller monthly payments for you? (*Dodges tomato*)
Effectively messaging BNPL options
As we come out of a pandemic, we have already seen a shift to more online shopping. Some retailers don’t message the ability to BNPL until check-out. Alternatively, we think brands should be shouting from the mountain tops that this is an option they offer. One easy way? A2P messaging: communicating with your users directly through their mobile device where they are already doing a lot of shopping. Channels like SMS can deliver marketing messages to consumers that the new Playstation 5 they have been coveting is no longer unaffordable. Ownership is a reality.
Cart abandonment is another obvious use case. Many digital platforms use email and SMS as a channel to try to increase conversions on an abandoned cart. Messaging, however, that a big-ticket item can be yours immediately for a fixed monthly payment could turn some heads. Many BNPL companies are already using SMS as a channel for reminders on payments, so this is a channel that the masses have already accepted in the BNPL space. As a reminder, SMS has a 98% open rate. Sending a quick note to a user with an abandoned cart will at the very least get them thinking.
An alternative to traditional credit
We mentioned that BNPL is an alternative to traditional credit cards. Items that folks self-financed through credit in the past are increasingly moving toward BNPL. In a world where nearly 50 million Americans missed a recent credit card payment, it’s easy to see why. And unlike the old-school layaway option, consumers get the items right away.
It’s also not just “things” that are eligible for BNPL. Airlines have joined the party, hotel chains have gotten involved. Messaging to a consumer that they can pay small, interest-free, payments for a trip to Europe may awaken the wanderlust in a generation of folks that have been locked indoors for the past year and a half.
For brands looking to embrace the power of BNPL (and for BNPL platforms themselves), the biggest challenge is getting the word out there. Money may be tight, but with responsible planning, consumers don’t necessarily have to abandon shopping. Using powerful digital channels, consumers can be educated about the availability and ease of buy now, pay later. If your brand is ready to hitch its wagon to this exciting industry, give Mitto a call. We’re ready to help.