Will BNPL use increase this Christmas as the cost of living continues to rise? (Paul Marcantonio)

With Christmas just around the corner and many consumers feeling the pinch of a rapidly worsening cost of living crisis, festive spending is already being curtailed. As consumers become more cautious with their money, payment trends will almost certainly
change, and business owners will need to stay informed about the latest developments if they want to remain competitive in an era of growing austerity.

In this article, I’ll focus on one of the most popular payment methods of recent years — Buy Now, Pay Later (BNPL). Using new research from international payment service provider and direct bank acquirer ECOMMPAY, I’ll highlight what the future holds for
BNPL and how consumer habits might change this Christmas.

Let’s dive in and unpack the data.

Cash flow concerns 

Compared to spending habits from previous years, over half of consumers are either using Buy Now, Pay Later services already or are more likely to use them. ECOMMPAY’s survey data also reveals that 25% of shoppers are now more aware of their spending habits
during the cost of living crisis, and are increasingly likely to turn to BNPL during the festive season.

Spreading the cost of expensive gifts

On average, UK consumers expect to spend £293 in total on their gifts this Christmas. This is an important figure when we’re unpacking the data on BNPL, as 27% of shoppers say they would be more likely to use the payment method for high-ticket items of £325
and over — in other words, for “above average” purchases.

So, what kinds of items do consumers use BNPL for? Unsurprisingly, 9% of shoppers would use credit to buy expensive items like jewellery during the festive season. However, this year, electronics, clothes, shoes, and toys are the items most likely to be
purchased using BNPL. (12%, 15%, 14%, and 12%, respectively). 

Demographic differences

As well as revealing what consumers were likely to use BNPL for this Christmas, the survey data also shed light on the type of consumer who would more readily turn to a cost-spreading service.

In the past, women were more likely to use BNPL than men, which is almost certainly down to the types of products and stores that offered the payment method. Today, however, that gap has narrowed as men continue to use this popular payment option as we approach
the height of the festive season.

In total, UK shoppers plan to use Buy Now, Pay Later for 16% of their purchases. This figure rises to 19% for men, while for women, it drops slightly to 14%. Younger age groups remain the dominant demographic for BNPL services, with 16-34-year-olds most
likely to use BNPL in 2023 for around 30% of their purchases. 

New legislation will encourage BNPL use

The BNPL industry has grown rapidly over the last few years and has come under greater media and public scrutiny, with stories emerging of shoppers falling into unmanageable debt and suffering poor credit scores as a result.

As interest in BNPL grows, governments are beginning to set out legislation. In the UK, plans are being drawn up to include BNPL in an amended version of the Consumer Credit Act 1974, with lenders requiring FCA approval and to offer greater levels of clarity
to potential customers.

So how does the general public feel about tightened regulation for Buy Now, Pay Later? Firstly, it should be noted that government concerns about unserviceable debt are very real: 58% of consumers admit that BNPL encourages them to spend more than they would
otherwise be able to afford. As for sentiment around the regulation itself, 37% of shoppers said they are now more encouraged to use Buy Now, Pay Later services.

Takeaways for eCommerce retailers

As eCommerce merchants navigate an increasingly tricky golden sales quarter, many will be keen to know if BNPL should be integrated into their payment flows. Luckily, we do have data that might help to make the decision easier:

• A third of shoppers (33%) are likely to remove items from their online shopping baskets if BNPL isn’t offered during the checkout process.

• A similar percentage (31%) of consumers would be likely to abandon a checkout completely to look for another store if BNPL wasn’t offered.

It’s clear that as the financial climate becomes more turbulent, shoppers are beginning to explore alternative ways to pay — especially during the expensive festive period. As BNPL gains even greater traction amongst consumers, retailers will surely be tempted
to add this payment method to their checkouts. 

Despite offering the potential for increased conversion and sales, Buy Now, Pay Later is a payment method that must be approached with caution — both for merchants and their BNPL providers. Offering any form of credit comes with an inherent risk that users
will run up unmanageable debt, and needs careful consideration if it’s to be implemented responsibly.

Summing up

As a payment method, Buy Now, Pay Later is enticing for merchants and consumers alike, offering shoppers a convenient way to spread costs, while businesses benefit from improved conversions and sales.

With Christmas around the corner, the cost of living crisis is pushing more shoppers towards BNPL to spread the cost of gifts — especially high-ticket items — so providers offering this payment method must do so with full responsibility towards vulnerable
end-consumers. 

Overall, survey data suggests that Buy Now, Pay Later will continue to grow in popularity as we enter 2023. However, the key focus for merchants and providers will be staying on the right side of regulators and providing a fair and transparent product for
consumers.