Consumer payment preferences are shifting, with flexibility and convenience becoming key drivers of purchasing behavior. Buy Now, Pay Later (BNPL) has emerged as a popular alternative to traditional credit, allowing shoppers to split payments into smaller, manageable installments. This model not only benefits consumers by making purchases feel more affordable but also helps businesses increase basket size, conversion rates and revenue. As BNPL adoption grows, understanding its psychological impact and optimizing its implementation can unlock even greater value for businesses.
What is Buy Now, Pay Later (BNPL)?
Buy Now, Pay Later (BNPL) is a financial service that allows consumers to purchase goods or services immediately and pay for them in installments over time. This payment method has gained significant popularity in recent years, especially in e-commerce, offering an alternative to traditional credit cards or paying in full upfront.
With the rise of fintech companies, BNPL has evolved into a more seamless and digital-first offering, available at the point of sale (POS) across various online and physical stores. It allows consumers to break up larger or smaller purchases into manageable, often interest-free payments, typically within a short time frame, without the need for upfront payment in full.
This model has found success due to the increasing demand for flexible payment options and the ease with which customers can access BNPL services, often with no credit check or application process depending on the amount of the purchase.
Buy Now, Pay Later to drive revenue growth
The rise of BNPL has reshaped consumer spending patterns and financial behaviors. Unlike traditional credit, BNPL offers a less intimidating path for consumers to make purchases and benefitting from an installment plan, leading to increased revenue for Businesses through higher conversion rates and larger basket sizes.
Buy Now, Pay Later (BNPL) and its Impact on Customer Behavior
The Numerosity Effect
One reason Buy Now, Pay Later (BNPL) encourages increased spending is the "Numerosity Effect," which describes the tendency of consumers to focus more on the smaller, periodic payments (installments) rather than the total price of the product. By splitting the cost into smaller, more manageable payments, consumers perceive the overall cost as lower, even though they are spending the same amount in total.
For example, if a consumer sees a product priced at CHF 490 and the option to pay in 4 monthly installments of CHF 122.5, the psychological impact is different from seeing a single price of CHF 490.
The 4 x 122.5 installment option reduces the perceived "expensiveness" of the product, making the consumer more likely to proceed with the purchase. As a result, the consumer is inclined to spend more than they would have if they were required to pay the full amount upfront.
The Responsible Lending
While the installment model can positively influence purchasing behavior, it also brings attention to the importance of responsible lending practices. To help ensure consumers are committed to repayment, many BNPL providers require the first installment to be paid immediately at the time of purchase.
This approach not only maintains a lower entry point for the consumer but also helps "create intent"—a psychological commitment that increases the likelihood the consumer will follow through with the remaining payments. It represents a balance between enabling flexibility and encouraging accountability.
Optimization of the Buy Now, Pay Later (BNPL) solution
Recent studies show that BNPL solutions can significantly boost revenue when optimized effectively. Certain factors influence consumer spending behavior, making purchases feel more accessible and increasing conversion rates.
- Displaying installment prices clearly helps customers perceive the purchase as more affordable.
- A lower first installment reduces the initial financial commitment, making it easier for customers to proceed.
- Extending the number of installments lowers the perceived cost per payment, encouraging higher spending.
By fine-tuning these elements, businesses can maximize the impact of BNPL, enhancing customer satisfaction while driving greater sales and long-term growth.
Conclusion
Buy Now, Pay Later (BNPL) has become a crucial tool for businesses looking to boost growth. By offering flexible payment options, businesses can increase customer satisfaction and increase conversions.
The Swiss FinTech YAPEAL offers Embedded Finance solutions that not only boost conversion rates but also expand customer reach by catering to those seeking flexible and convenient payment options. While YAPEAL does not directly offer BNPL services, it enables companies to integrate BNPL capabilities into their offerings through its Digital-First platform, with the funding for the credit in a BNPL installment plan provided by a bank or specialized lender.
The Author
Charline Dulac
Growth Marketing Manager at YAPEAL