Buy now, pay later’ (BNPL) usage has grown exponentially over the last year with nearly 4 in 10 Brits saying they have used it to pay for goods to some degree. It’s unsurprising as the pandemic has pushed people’s wallets hard, but consumers still want to purchase that big-ticket item in a way that is flexible to them.
Brexit further underlined the importance of BNPL as the added costs to shipping and delivery need to be either absorbed by a business or passed onto the consumer. BNPL will become a baseline requirement for meeting ever-evolving customer expectations. It represents an opportunity for retailers to grow in difficult market conditions, helping small and medium retailers reach new audiences and increase conversion.
Josh Guthrie, Head of UK at Mollie and Kevin Ward, Director of UK Partnerships at Klarna, are at the frontline of the UK’s ever-changing payment habits. They discussed why merchants must embrace BNPL.
PE: Are you able to tell us about how BNPL has grown throughout the pandemic?
JG: Not just in the UK, but across Europe, we have seen the share of volumes processed with our BNPL partner Klarna multiply many times over since pre-pandemic. This is very impressive, although it is an accelerated trend rather than a completely new one. Prior to COVID, BNPL methods were increasingly accepted and adopted, however, the added uncertainty has meant that customers are demanding more freedom and flexibility in how they purchase items.
On the retailer side, merchants of all sizes have had to embrace it: larger established players have needed it to appeal to a wide range of customers; smaller SME merchants and those who previously may have not had an online presence have had to implement it to stay competitive. At Mollie, we optimise our technology and integrations with partners and webshop platforms to make it easy for retailers to add BNPL to their offering.
KW: Exactly, the ease of integration is vital now, retailers want (and need) it to be simple, and the technology has really helped them to change at a critical time. The pandemic has been a massive driver and forced adaptation – our own growth is a testament to that, particularly in the US where we’ve seen over a 300% increase in the last 11 months. And, consumer awareness is absolutely there – look at social media platforms or brands like Zara and John Lewis and you can see customers are demanding BNPL to be offered at the checkout. This is only going to continue in the next 12-24 months, and it will be the firms that make it easiest to transact that will flourish.
PE: What role do you believe BNPL firms will play in the payment journey following Brexit, given added prices in shipping and delivery?
JG: Integrating BNPL methods like Klarna is beneficial for post-Brexit businesses targeting global audiences because they’re pan-European payment methods – meaning retailers can unlock revenue from many different markets in one go. Brexit has also brought a lot of disruption so cost-free payment options for consumers will become increasingly important as people are met with increased delivery fees.
The removal of payment pain points helps elevate the pressures felt elsewhere. We are seeing many traditional businesses who may not have jumped on the digital transformation bandwagon now becoming more convinced by the BNPL proposition.
KW: In the post-Brexit economy, you must be sympathetic to the market and consumer’s needs, therefore those prioritising cross border payments will be the ones to rise above the rest in the next year. Consumers also have so many options as to where they spend so you need to be competitive –If you don’t have a level of personalisation and the latest tech you will lose business.
PE: Is the growth of BNPL indicative of how consumer shopping habits have been forced to evolve following Brexit?
JG: I think we’ve certainly seen an evolution of shopping behaviours with customers purchasing items from anywhere at the click of a button. Though ultimately consumers are looking for best in class customer service and want to feel connected to the brands they love. One of our customers, Gymshark, is a great example of a business that has grown with its audience and made its offering very personalised.
Merchants can no longer get by with a clunky user experience or asking shoppers to input lots of information before every sale. It must be seamless and BNPL certainly plays a part in making that experience the best it can be.
KW: Customer expectations were changing beforehand, but the pandemic and Brexit together have certainly intensified shifts in consumer behaviour – customers are expecting more but have less patience for bad experiences. Of course, we have seen a huge shift to online in the past 12 months. What is essential moving forwards is for retailers to provide customers with ubiquity so that they experience the same journey regardless of the channel. This is fast becoming a non-negotiable for the new generation of shoppers?
PE: What role do you think BNPL firms can play in boosting the recovery of SMEs as market difficulties intensify?
KW: As the economy recovers, the ubiquity of partners is going to play a huge role in how brands bounce back. SMEs are going to need to work with those with the best skillsets who they can stick with as they scale. The pandemic has shown that you don’t have to be a giant to succeed if you’re adaptable and can innovate digitally.
At the same time, we know there will be many SMEs who will become the next giants, as has been the case with Gymshark. Therefore, it is the job of BNPL firms and other payment partners to support merchants of all sizes equally in their economic recovery.
JG: Agreed. And it is also paramount that those partners don’t just have the best technology but that the onboarding and customer support sets merchants up for success.
PE: Do you believe that regulations should tighten on BNPL firms in the UK and what have you made of criticism for them from various lobby groups?
KW: At Klarna we take compliance very seriously and welcome additional regulations as it helps set high standards for the whole industry to follow. Not everyone knows that Klarna is actually a bank as well as a BNPL provider, therefore we have very strict rules that we must abide by and of course want to provide consumers with a high standard of service. We have supported industry reviews, have monthly check-ins with the FCA on how we can do better, we also assess affordability and have a commitment to 0% fees on our pay later services. With that in mind, we want to set the benchmark for the BNPL industry and stay ahead of regulation encouraging the wider community to do better.
Beyond that it’s about educating the market and lobby groups about our position and these commitments – and at the end of the day, making sure we always keep the customer at the centre of everything we do.