Buy Now, Pay Later (BNPL) has emerged as the fastest-growing payment method in the developed world. It is far outpacing the growth of other technology-based payment methods, such as traditional bank transfers and wallets like Apple Pay, Google Pay and Samsung Pay. Although the levels of acceleration during the pandemic will not be sustainable, it is expected that for at least the next five years, growth of BNPL will continue to be 9.8% annually.
In Mexico, the opportunity for BNPL companies is immense. For the third year, Mexico was ranked among the top five countries with the highest growth in e-commerce retail worldwide—despite the fact that 40% of consumers have no credit history. Additionally, 90% of consumer financial transactions still involve cash. This is because many consumers are a part of an informal economy, which makes it difficult to establish credit histories and obtain bank loans.
How BNPL can improve financial inclusion
Access to and eligibility for BNPL products is often easier because it doesn’t necessarily require previous debt history. This means BNPL providers have a chance to step in the place of a traditional bank and improve financial inclusion by integrating unbanked and underbanked consumers into the fold. These providers can help consumers build credit history and access other banking services if needed.
And when it comes to traditional banks, consumers can lose an hour or two by going to a physical location – where not everyone relates to a bank’s traditional products and conditions. This is one reason why BNPL has become so popular in LATAM as a whole. As such, BNPL providers have a real opportunity to stake a claim while market share is still up for grabs – especially in Mexico.
For the average Mexican consumer, BNPL services offer an alternative means of payment. It’s a convenient way to make a purchase since Mexican BNPL services generally forgo a down payment and allow consumers to shop online without owning a debit or credit card. Instead, consumers can make cash payments at participating convenience stores. Moreover, purchases can be financed, and in most cases, providers don’t charge interest – unless consumers make late payments. BNPL plans also offer a sense of security since consumers are able to walk away with their purchase – even without paying for it upfront – and by breaking it into affordable instalments versus a large upfront payment.
For merchants, the value of an instalment payment offering is indisputable. BNPL solutions have proven to increase merchants’ sales conversion by at least 40%, which means fewer abandoned shopping carts. And since consumers can buy more for less at that moment, the service increases at least 70% of the average tickets. Giving consumers the option to pay in instalments also expands merchants’ customer base because it offers a payment plan to people who might not otherwise be able to afford certain products.
The move to brick-and-mortar stores
While BNPL solutions are near synonymous with e-commerce, they’ve begun expanding into brick-and-mortar stores, too—a natural consequence of BNPL’s aggressive play for payments domination.
In-store expansion may seem counterintuitive considering how the pandemic pushed people to shop online, but consumers are eager to return to physical stores. In fact, other BNPL providers have reported that the majority of their top customers are omnichannel.
Moreover, research shows that Gen Z will create the greatest demand for in-store experiences. Why? Because people love to experience a product before making a commitment. They love the ritual of consulting family and friends before checking out—and they love the rush of dopamine when making a purchase.
This is great news for brick-and-mortar stores, given that in-store purchases yield fewer returns—8% compared with 25% for online—and more impulse buys. About 25% of in-store purchases are made on a whim versus 16% of digital purchases. Moreover, despite the country’s e-commerce surge, 95% of shopping still happens offline.
Offering consumers a point-of-sale loan, online and in-store, that is quickly approved and paid off in interest-free instalments can expand consumer purchasing capacity and benefit communities that are otherwise financially excluded. Providing an in-store option will also encourage older generations, who may not be as familiar with technology, to utilize a method of payment that may help them budget and improve overall financial health.
As pandemic restrictions ease, many online shoppers will continue to return to stores in places like Mexico where cash is king, and BNPL providers need to be ready when they do.
About the Author: Krishna Venkatraman is the Chief Data Scientist at Kueski.