Consumers place great importance on sustainability — a concept that goes beyond environmentally friendly products — but they are also searching for sellers that grant them control over their own finances, enabling them to stay within budgets often stretched thin because of bills or outstanding debts.
Budget fears crop up far more often than expensive purchases, however, especially as consumers abandon traditional payment methods that put financial strains on even simple purchases.
Price reductions from consumers’ favorite brands would solve their issues, but retailers cannot drop prices as low as some might like. Merchants of all sizes and price ranges thus need to find a solution that can assuage overspending fears while ensuring they remain profitable and competitive.
Buy now, pay later (BNPL) offerings can provide the advantage retailers seek, according to Chad Miller, senior director of Digital Experience for retailer Designer Brands, which specializes in footwear and includes popular shoe merchant DSW under its banner. The latter launched a BNPL option from provider Afterpay in 2019, enabling installment payments online and through its mobile app.
“The way younger consumers perceive credit — and there is almost a fear associated [with] credit, given everything they have experienced in their lives — was really what drove us to begin the conversations,” Miller told Fintech Zoom in a recent interview. “[We implemented the solution] knowing [our consumers] wanted options to spread payments out, to buy shoes for various reasons… [Our] perspective [has] always been that there are so many payment options out there, and we have to meet our customers where they feel most comfortable, so we are always looking just to provide options.”
BNPL tools’ main draw is that they provide comfort, regardless of products’ prices. This atmosphere of financial flexibility is crucial to retailers looking to compete in today’s shopping environment, no matter how customers are transacting.
BNPL Budgets and Customer Comfort
Retailers have spent decades trying to figure out what consumers want from their shopping experiences. The answer is constantly changing, with different demographics wanting to shop via different channels — online, mobile or in store — and deciding seemingly at random that they prefer new payment methods despite previous behaviors.
“When we initially started talking [about adding BNPL options], one of the strategies we had in mind … [was asking], ‘How do we provide payment types [that] meet the terms in which certain groups want to buy things?’” Miller said.
Consumers find BNPL’s convenience intriguing, but financial flexibility is the real advantage, he noted. DSW has offered its shoppers a BNPL option for approximately one year and has seen both adoption and average ticket prices rise among its core customer base since implementation.
The increase in purchases’ overall values speaks to how today’s consumers are thinking about payments and retail. Merchants have always considered budgetary constraints when updating their payment processes, but their importance has shifted as debt-sensitive younger generations obtain purchasing power.
These financial worries carry into each purchase, making BNPL solutions attractive to consumers and retailers alike. These offerings can help customers stay on budget while making necessary purchases, such as new shoes for their children, Miller said. BNPL also ensures that transactions are not abandoned at the point of purchase because of debt-related fears, keeping conversion rates high and retailers happy.
“Whether [the customer] wants to use Venmo, or whether [they] want to use Afterpay or Google Pay, there are generations and other variables [regarding] payment types that certain … customer segments prefer,” he explained. “[Our BNPL solution has] no interest fees [attached] to it. It is not like traditional credit, [and that attracts] customers slightly younger than our core average customer age.”
Millennials and members of Gen Z are already on board with BNPL. Having grown up during 2008’s Great Recession has cemented financial fears in their minds, and given that they are just beginning their careers, their spending power remains low. Such options enable these consumers to make expensive purchases that they might not be able to afford all at once, while easing fears of going over their weekly or monthly budgets. Older generations tend to be more financially stable and have stronger relationships with credit, meaning they are not the target demographic for BNPL, but Miller noted they are using the payment method and find it attractive.
Evolving BNPL for the Future
BNPL adoption among older customers was surprising for DSW, he said, adding that this group appreciates the stress-free budgetary control it provides — a feature that seems to hold universal appeal.
“[BNPL] is being adopted even from our core customer base, more so than I would have expected,” Miller confirmed. “There is the beneficial upside [for us]: Yes, we are converting more customers that we may naturally not have because now we provide a new piece of the customer experience to them. But we are also seeing [that] even our customers who have been loyal to us for a very long time are also taking advantage of this alternative payment type.”
Consumers’ increased BNPL adoption means they are viewing the payment method as just one more option wherever they shop, including traditional brick-and-mortar channels. DSW does not currently support BNPL options in stores, although customers can use such offerings online and through its mobile app. Brick-and-mortar implementation will likely be critical to future BNPL developments, however.
“I would say the next wave of this — which is the future of BNPL — will be how will this manifest itself into the store,” Miller said. “We certainly have an interest in learning that, too, just because we have seen such a positive response from our customers and would like to potentially partner with [our provider] … to see how this could come to life in the U.S. market.”
DSW does not have a specific timeline in mind for in-store integration, but it plans to closely watch BNPL’s evolution in the global payments market. Its importance in consumer satisfaction will likely grow as customers’ mindsets about payments also change.