There’s no doubt that consumer adoption of “buy now, pay later” (BNPL) platforms has come a long way over a short period of time. But something else about the category has also undergone rapid transformation – and that’s the verticals for which consumers use it. For example, a recent PYMNTS research project showed that 17 percent of consumers who recently leveraged BNPL used it for an electronics purchase, and 10 percent used it for home furnishings.
The verticals are expanding for BNPL consumers. Such has been Afterpay’s experience, Co-founder and Co-CEO Nick Molnar told Karen Webster, as it has watched its service expand in the U.S. over the last two years. Consumers generally start using buy now, pay later services in the fashion and beauty verticals, and then learn to use it almost everywhere.
“In Australia three financial years ago, fashion and beauty represented north of 70 percent of our total sales,” Molnar said. “Now it represents just 40 percent of total sales. The glide path over time has been toward using Afterpay to buy everything from airline tickets to going to the dentist. I think you’ll see that start to unfold in the North American market and, more broadly, in other parts of the world.”
Because as they’ve seen among Australian consumers, that glide path can lead far and wide. As of today, he said, Afterpay processes 15 percent of all online retail and claims 30 percent of the millennial demographic as monthly users of the service. Their superusers, the top 1 percent of customers, are buying from 50 different retailers across 15 verticals a month. That means there’s “a very diverse set of shopping that’s taking place” enabled by Afterpay.
Because online, and increasingly in-person, consumers are looking for the payments flexibility inherent in BNPL – and they are demonstrably rewarding the merchants that offer it.
Creating The Right Glide Path
When considering expanding into a new vertical, Molnar told Webster, Afterpay is very much committed to letting demand lead them to the next destination. They do that, he said, in two ways. First, they simply look to where demand is flowing from directly – a lot of their growth comes from retailers who contact them looking to link up. Second, they keep a close eye on where their customers are actually going.
“The second focus for us is around this next-generation consumer, focusing on the millennial and Gen-Z cohort,” Molnar said. “What is their share of wallet? Where are they spending money? And ultimately, where can we provide the best service to our customer by expanding our acceptance network in areas where they concentrate their spend?”
And that glide path winds in ways that may be unexpected, but make sense. Beauty leads directly to wellness offerings, which then branch into things likes dental visits, optometry and even primary medical care. Wellness led them to medical services like dental in Australia – and given the pressing need in the U.S., Molnar thinks it is reasonable to expect a similar path.
“I think consumers should be able to get the healthcare they deserve and desire – not the healthcare that they can afford on that particular day because their pay is coming in a few days or whatever it might be,” he said. “To have the ability to be the bridge without any subsequent debt trap, to empower a customer to engage in the healthcare they truly want – it’s a really privileged position to be in.”
Building The In-Store Experience
And that commitment to be at all the places their customers want to be, said Molnar, has also fueled their expansion into physical commerce. More than two million customers have set up their Afterpay card to shop in stores since the offering went live in fall of 2020, a process designed to be easy for both the consumer and the merchant.
The Afterpay card is a digital card that will provision and pay at the PoS just like any other card – it requires no technical integration on the part of any card-accepting retailer and no massive new behavior from consumers, save for in many cases having to learn to pay with a digital card for the first time. According to the firm’s in-house data, 32 percent of their in-store shoppers had never used a contactless payment method prior to using Afterpay for the first time.
And in offering that in-store possibility, Molnar said, the data shows there is no cannibalizing the online opportunity. The offerings appeal to slightly different demographics, as in-store shoppers are slightly older – and where there is overlap in consumers using the services in both channels, usage tends to increase on the whole.
“We are seeing that when someone makes a purchase in-store, they actually spend more in the online channel as a result of that decision,” Molnar noted. “So not only are retailers seeing bigger basket sizes and larger average order value with Afterpay as compared to regular cards, but they’re also seeing increase in actual spend and lifetime value of that customer when both channels are in the mix, rather than just one.”
The Roadmap For 2021
As 2021 is getting off the ground, the world remains a rather disrupted and uncertain place, which is why Molnar’s forecast for at least the first part of this year doesn’t call for a lot of change. The trends of the back half of 2020 will persist through the first half of this year, he predicts. Wellness is expected to continue to be a big performer, as will home goods and pets.
But the bigger change in how consumers pay is already underway, said Molnar, and it won’t merely persist as 2021 gets off the ground – it will continue to expand. Because consumers are increasingly expressing their preference for it, and merchants are increasingly seeing the benefit and even necessity of getting on board.
NEW PYMNTS DATA: BUY NOW, PAY LATER CONSUMER STUDY
About: Buy Now, Pay Later: Millennials And The Shifting Dynamics Of Online Credit, a PYMNTS and PayPal collaboration, examines the demand for new flexible credit options as well as how consumers, especially those in the millennial demographic, are paying online. The study is based on two surveys, totaling nearly 15,000 U.S. consumers.