By Retail Brew Staff
less than 3 min read
Definition:
BNPL is a type of consumer financial product generally offered through fintech firms that functions similarly to a short-term loan. The difference is that these products typically do not charge interest, and rather than setting a minimum payment amount, allow shoppers to pay for their entire purchase over a series of installments with set amounts on agreed-upon dates.
The origins of BNPL
The practice has been touted by some as a democratization of consumer credit, while others have criticized BNPL for saddling consumers with “phantom debt.” However, the benefit for retailers is relatively straightforward. Customers now have another means of funding those slightly more expensive small to medium-sized purchases, which is a real advantage in an economy where customers are pulling back on discretionary purchases. The downside is that sometimes consumers feel they are being taken advantage of, as DoorDash recently experienced when it announced that it was offering BNPL for takeout orders.
BNPL in context
The criticism has spurred some fintech firms to try to differentiate themselves from more traditional credit companies by providing more transparency around their practices. Klarna, for example, began an initiative last year called Wikipink that shows internal data such as late fees, repayment rates, and customer demographics.
In the meantime, adoption is soaring among consumers, especially around the holiday season. As of 2023, BNPL had contributed $16.6 billion in online spend, up 14% year over year from 2022, according to Adobe Analytics.
Retailers are also getting savvier with how they utilize BNPL. Some are now using it as a marketing lever, offering 0% APR loans on products they are trying to promote. This is giving them an alternative to other promotional strategies such as markdowns, per BNPL provider Affirm.
