Around 19.4 million people in the UK have used buy now pay (BNPL) solutions to purchase goods, according to research from financial services comparison site Finder.
Of those using this type of payment method, 52% are using it more during the pandemic than they were pre-Covid-19.
Finder also suggests online purchases using BNPL are growing annually at a rate of 39% and they are the fastest growing tool for online purchases, with younger generations more likely to use BNPL services than the older generations – although it is popular across several demographics.
This method of payment has grown so quickly that the regulators are only just catching up. The government announced in February that BNPL will be regulated by the Financial Conduct Authority (FCA) to bring it into line with other forms of credit offered on the market.
And as that consultation period continues it was an apt time to bring together retailers for a discussion about consumer credit in their industry, and to understand their views on the best ways for BNPL to be deployed.
Retail Gazette teamed up with BNPL provider Laybuy to host the virtual roundtable which asked the question, what’s next for retail and BNPL?
With representatives from AllSaints, Dixons Carphone, Mamas and Papas, Morleys Department Stores, Oak Furnitureland, Oliver Bonas, and Shoe Zone in attendance, a heated and varied debate ensued.
BNPL as the modern evolution of credit
As a recently published report on the BNPL market and retail by Retail Gazette and Laybuy suggests, the concept of consumer credit in retail can be traced back to the late 19th century.
Throughout the 20th century it existed in the form of layaways, mail order accounts, and then more recently in the form of store-owned credit schemes, all the while as credit cards grew in prominence from the 1950s onwards. BNPL is the modern, tech- and mobile-supported version of a long-running concept.
And it is adopted by retailers for different reasons. One roundtabler suggested their business effectively “had to” introduce these options in order to keep up with competitors, while others spoke about using it as a way to convert sales and providing customer convenience.
Multiple retailers around the table suggested their views of BNPL had changed in recent times. One acknowledged credit previously felt “a bit too high street” for their brand, reflecting on a time when Debenhams, Topshop and others were big purveyors of store cards to encourage regular spend, but now it’s a very much something on their agenda.
For Charles Smith, chairman of footwear retailer Shoe Zone, his company had previously ruled out all credit as an option for customers. The business’s relatively low average transaction value compared to others in the industry deemed it a low priority, he said.
“Now, we’ve changed our mind – we believe BNPL is going to be regulated and therefore we are getting ourselves ready to have all the relevant documentation in place,” he said at the event.
“We’re sure we miss a younger audience and so we are looking to add options to our proposition that appeal to younger people as much as possible.”
As the Retail Gazette and Laybuy report suggests, BNPL providers often bring consumers with them. Some people arguably have an affinity with them in the way they might have with an individual retail brand.
Regulation of BNPL welcomed
The imminent regulation of BNPL was welcomed by the roundtable participants.
One said the FCA’s involvement will be good because they want customers “to be clear about what they are going to get” and that in the current landscape a lack of regulation can leave in-house customer service teams looking like they don’t know all the answers.
Another retailer said “consistency is crucial”, while elsewhere it was suggested regulation would help support “stronger partnerships with payment partners” and that responsible lending is “hugely important for brand image and reputation”.
Indeed, the need for stronger BNPL partnerships – in terms of better support for customer service teams – was a key topic discussed throughout the roundtable. Upskilling retail head office staff in the processes of credit and BNPL was described as a key issue for more than one of those involved in the debate.
Nathan Williams, chief operating officer of nursery brand Mamas and Papas, noted: “Depending on which credit options you offer they can add more complexity into the business – therefore, it is important to be sure that when expanding your offering of credit options they deliver you a return that you need to make it worth it.
“In the current challenging environment, you don’t want to be adding complexity to store teams’ operations either and removing time for important customer-facing activities.”
But he added: “Retail is often credit driven, and splitting payments makes things easier for customers to spread the cost. There’s a trade-off to be made; with that in mind it is important that retailers offer these options to remain competitive so it’s crucial to get the contract right for all parties at the beginning with credit or BNPL providers so everyone is clear on requirements and expectations.”
During the roundtable there was a general appreciation of the benefits credit and BNPL services bring to both consumers and retailers.
And one said BNPL was clearly “a much better customer experience” than the drawn-out process customers might associate with signing up for store credit in the traditional manner.
Credit constitutes ‘wise cashflow management’
One retailer said their business did not view credit as a way of enabling sales, it’s more about giving everyone “a wise cashflow management” option.
Most of the retailers offered credit in its varying forms for larger, high-end items in their inventories, such as furniture, pushchairs, or white goods. There was certainly a yearning among those in the discussion to understand more about how more modern forms of split payments, such as BNPL, might benefit their businesses.
John Gillan, GM, UK & Europe at Laybuy, who also took part in the roundtable, said the debate showed there is significant demand among the retailer community for credit options, and a desire from merchants for additional support from their BNPL partners.
“Although the concept of consumer credit has existed for over 100 years, BNPL is a young sector within the financial industry – but it’s maturing,” he explained.
“With forthcoming regulation, retailers and consumers alike will be more confident to use BNPL, but with a large proportion of the population – including several different demographics – using it on a regular basis, it is already serving a useful function.”
He added: “BNPL will continue to evolve and we aim to provide a solution that takes the fraud and risk burden off merchants, while also giving them the chance to offer payment options their customers will find convenient. We’ve also recently partnered with Mastercard to offer a BNPL option for merchants to deploy in the store environment.”
Want to understand more about the key debates discussed in the roundtable? Download What’s next for retail and buy now pay later?