Gen Z Turns to Buy Now, Pay Later as Payment Alternative

When today’s consumers pay for their new sofa or outfit, they don’t even need to reach for their wallet—and not just because they’re tapping their smartphones or paying in-app. Instead, the consumer lending solution known as Buy Now, Pay Later (BNPL) is surging—and like many trends in payments these days, Gen Z is propelling the shift toward this payment alternative. 

Given its rising popularity with Gen Z (those born between 1997 and 2012), both businesses and payment providers are increasingly eager to provide a BNPL option to this vibrant demographic.

BNPL benefits consumers and businesses alike

There’s little doubt why. Customer satisfaction with BNPL is high, with 61 percent of those who have used the payment method reporting they are satisfied or very satisfied, according to a recent study by Mercator Advisory Group.

The surge in these programmes stems from a confluence of earlier trends. BNPL is a payment method that has evolved from “lay-away” type programmes of the past. But instead of leaving the merchandise at the store until all the payments are made, the consumer can walk away with it after the first payment. Often approved through a streamlined application process directly at the point of sale or online, consumers are increasingly attracted by the offering’s ease and convenience.

These solutions originally gained popularity in Australia and are now booming in Europe, with their rise in popularity even further accelerated by the growth of digital transactions during the pandemic. BNPL loans typically split the purchase price into a series of smaller payments, allowing consumers to make more predictable payments for a fixed set of months. 

Gen Z shoppers, who generally have less disposable income than older groups, find BNPL especially appealing as an easy budgeting tool. They enjoy being able to take home their merchandise, often without accumulating interest and, depending on the program, without relying on access to available credit. 

Discover Global Network® has been keeping a close eye on this trend and educating merchants on what it means for their business. “These programs benefit retailers as well, since they can advertise interest-free installments as special pricing offers for shoppers—welcome features during these times of financial insecurity,” says Joanna Hanner, Senior Manager of Payments Products at Discover®. “In fact, businesses are often quick to absorb the associated borrowing costs to promote BNPL as ‘free’ financing solutions for customers.” 

Younger demographics have gravitated to BNPL

In a recent Mercator survey, 52 percent of respondents aged 18-24 used BNPL or short-term loans in the past 12 months, compared to only 12 percent of those older than 65. This is a good indicator to businesses targeting younger demographics that incorporating BNPL into their checkout options will bring a boost to their bottom line. 

The option to divide purchases into flexible installments allows these customers to make smaller purchases, as well as bigger-ticket items, without affecting their day-to-day budgets. As a result, offering BNPL can lead to increased visits and decreased cart abandonment. 

Mercator’s report shows that BNPL is popular with younger populations because it offers both predictable financial flexibility and simpler borrowing terms. In fact, many solutions offer lower interest rates than traditional credit cards. In addition, BNPL appeals to this demographic’s general desire for instant gratification.  

Bringing businesses and consumers new payment options

“At Discover,® we’re always looking for new ways to offer payment flexibility to consumers and businesses,” Joanna says. “In our view, BNPL is a great option: It fits with our belief in financial inclusivity, and it directly supports our mission to help people spend smarter, manage debt better and save more money so they can achieve a brighter financial future.”

As with any borrowing facility, consumers should ensure that they borrow responsibly and never more than they can afford. It’s important that they understand the cost of possible late fees and the potential impact on their credit rating. When part of a well-considered financial plan, consumers are finding that BNPL can play a valuable role in encouraging financially responsible borrowing. 

For payment providers and businesses, it’s also vital to consider BNPL’s role as just one of a growing set of payment options, each of which can be profitably integrated into their payments ecosystem. As BNPL continues to grow in popularity, it represents an increasingly important opportunity for retailers—especially those eager to appeal to a younger segment of consumers. 

Content accredited to Discover® Global Network. It is intended for informational purposes, and is not intended as a substitute for professional advice.