Stores

Brands embrace 0% APR loans as marketing lever

Affirm says that brands are increasingly using 0% APR buy now, pay later loans as a way to grow sales and as a substitute for discounts.
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Anna Kim

3 min read

An increasing number of merchants are using 0% APR loans as a substitute for other marketing levers such as discounting and performance marketing, according to buy now, pay later provider Affirm.

Erika White, VP of marketing and communications at the payment network, told Retail Brew that as awareness of BNPL has grown among consumers in recent years, more brands are using the offering as a promotional or marketing tool to directly drive sales.

“Now that people are comfortable using this and recognize the benefit over more traditional tools like credit cards, they’re looking for the next opportunity to use it,” she said, adding that “0% is a really attractive lever for creating that urgency.”

She cited the availability of 0% APR loans for Peloton workout bikes pre-pandemic as one event that helped get consumers and brands on board with the concept. But since then, retailers and brands have ramped up the use of discounts to keep shoppers interested and drive sales. Now some companies are turning to 0% APR loans as a substitute marketing lever.

Loans over discounts: Affirm called attention to the trend this past holiday season.

“With holiday shopping season starting earlier and earlier each year, there is a growing pressure for retailers to offer discounts bigger, sooner, and longer in order to stay competitive,” Wayne Pommen, chief revenue officer at Affirm, said in a statement at the time. “However, constant discounting ultimately dilutes a retailer’s brand and hurts their bottom line.”

Pommen added that offering a 0% APR promotion had in some cases achieved the same result as a 20% discount for a “fraction of the cost.”

White said she could not share details about the cost structure for merchants offering these loans, but did clarify that merchants essentially subsidize the 0% offering, which it then makes available to its users based on their financial profile.

On the sales side though, “we’ve seen merchants experience sales uplifts of over 20% by offering 0% APR, and when that 0% APR offer is paired with longer payment terms in addition, you see those boosts up to 50%,” White said.

  • Alterra Mountain Company, which runs a number of ski resorts across the country, saw a 30% bump in conversions among customers offered 0% APR.
  • Baby stroller maker Bugaboo said 45% of its Affirm sales came from 0% APR promotions. “The zero-interest promotions with Affirm are really reducing friction,” Arielle Heyman, head of digital for Bugaboo North America, said in a statement.
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Looking for alternatives: White also identified some push factors for merchants, including the increasing difficulty of generating conversions from performance marketing.

“Performance marketing programs are definitely getting harder with the deprecation of cookies, and everyone’s sort of looking around a corner to think about what are those levers that can turn on quickly and have a relatively immediate return,” she said.

One pull factor, she added, is that merchants are increasingly looking to test different strategies in real-time, and 0% APR is one option for promoting a product that doesn’t break the budget.

As for which budget merchants are tapping to pay for 0% APR, “it can come from a marketing budget, it can come from another budget,” White said, but regardless, “it’s coming from a budget that is focused on growth.”

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.