It's no surprise that Buy Now, Pay Later (BNPL) enjoys high customer satisfaction, with 61% of users reporting being satisfied or very satisfied with this payment method.

Generation Z is embracing Buy Now, Pay Later as a payment method.

When consumers buy a new sofa or a fresh outfit today, they don't even need to reach for their wallets. However, this isn't because they're paying with their smartphones or making in-app purchases. No, what's gaining traction in consumer credit are installment payments known as "Buy now, pay later" (BNPL). And as with many current trends, this payment method is being driven by Generation Z. With the rising popularity of BNPL among Generation Z, both retailers and payment service providers are increasingly eager to offer options tailored to this age group.

Buy now, pay later is an evolution of installment payments.

The rapid rise of this payment method is the result of a combination of previous trends. Customers are increasingly drawn to the simplicity and convenience of this payment option, as it is typically facilitated through a straightforward application process conducted either at the checkout or online¹.

These solutions originally gained popularity in Australia and Europe and are now booming internationally, with their growth further accelerated by the increase in digital transactions during the pandemic. Typically, with buy now, pay later, the purchase price is divided into a series of smaller installments over a specified period, which customers then pay off with monthly payments.

Buyers from Generation Z, who generally have less disposable income than older demographics, find installment payment schemes particularly appealing as simple budgeting tools.

They enjoy being able to take the goods home, often without additional interest and, depending on the provider, sometimes even without a credit check.

This payment method also benefits retailers, as they can attract new customers with interest-free installment payments as part of promotions. It's a helpful strategy during financial constraints, as indeed, retailers often absorb the credit fees associated with BNPL to advertise "free financing offers''.

A BNPL offer can lead to more frequent visits and fewer abandoned purchases

BNPL is preferred by younger generations. 

More and more retailers are integrating BNPL into their systems, appealing particularly to younger demographics. The option to split purchases into flexible installments allows this buyer segment to make both smaller purchases and larger investments without straining their budget. BNPL can therefore lead to increased purchases and prevent shopping cart abandonment.

52% of respondents aged 18 to 24 have used BNPL or short-term loans in the last 12 months, compared to only 12% of those aged over 65².

Surveys have shown that installment payments are popular among younger demographics because they offer both predictable financial flexibility and simpler credit terms. In fact, many solutions provide lower interest rates than traditional credit cards. Moreover, BNPL offerings also appeal to younger age groups because they cater to their desire for instant availability.

It's no wonder that younger consumers actively seek out such financing plans. According to Mercator Research, 52 percent of respondents aged 18–24 used a BNPL offering or short-term loan in the past 12 months, compared to only 12 percent of those aged over 65.

New payment options for merchants and consumers

Installment payments offer a great option: they align with financial inclusivity and directly contribute to the goal of helping people spend their money more wisely, manage their liabilities better, and save more, thereby ensuring a secure financial future.

As with any form of credit, consumers must ensure that they act responsibly and do not spend more than they can afford. It is important for them to be aware of the costs of late fees and the impact on their creditworthiness. However, if it is part of a well-thought-out financial plan, consumers find that Buy Now, Pay Later can offer a good way to finance purchases thoughtfully.

For payment providers and merchants, it is also important to consider BNPL as another payment method that can be profitably integrated into their payment system. As installment payments continue to gain popularity, they represent an increasingly important opportunity for retailers - especially for those looking to reach young customers.

¹ Mercator Advisory Group, Spring 2021. 2021 North American Payments Insights - Buy Now Pay Later. Accessed August 24, 2021. ² Mercator Advisory Group, Spring 2021. 2021 North American Payments Insights - Buy Now Pay Later. Accessed August 24, 2021.