“Buy Now, Pay Later”
Can BNPL Drive Sales Again?

Amid economic uncertainty driven by recession, inflation, and stagnant incomes, a growing payment method is gaining momentum: Buy Now, Pay Later (BNPL). This system allows consumers to make purchases immediately and pay for them in installments, creating a sense of financial flexibility and driving increased consumption. Retailers are closely monitoring BNPL for its potential to increase customer traffic and conversion rates. This article explores the mechanics of BNPL, its key features, and its potential applications in the beauty supply industry.

What is BNPL?

©Mordor intelligence

BNPL, short for “Buy Now, Pay Later,” refers to a postpaid payment system that enables consumers to purchase goods and services without the need for a credit card. Under this model, the BNPL service provider pays the merchant upfront when a consumer makes a purchase, either online or in-store. The consumer then repays the provider in installments over a defined period. Leading BNPL providers such as Klarna, Afterpay, Affirm, and PayPal have established significant presence in the global e-commerce and retail markets. These companies distinguish themselves by offering tailored services that benefit both consumers and merchants. For example, Amazon introduced BNPL in 2021 through a partnership with Affirm, allowing shoppers to split payments for purchases exceeding $50. Walmart, likewise, collaborated with Affirm in 2019 to offer BNPL options in stores and online. Apple launched its own BNPL service, Apple Pay Later, providing consumers with flexible payment solutions.

Key statistics about BNPL

The BNPL market has grown from $156.8 billion in 2023 to $232.3 billion in 2024, reflecting a compound annual growth rate (CAGR) of 48.3%. By 2028, the market is expected to reach $1,148.2 billion, with a CAGR of 44.6%.
Source: The Business Research Company

Increased consumer conversion rates: Retailers offering BNPL options experience an average increase in conversion rates of over 30%, with gains reaching as high as 50% in high-value product categories.
Source: Affirm

Increased consumer confidence: Studies show that customer loyalty increases by over 20% at retailers offering a BNPL option. Additionally, 80% of BNPL users report being more likely to shop with the same retailer again.
Source: PYMNTS

Connecting with younger generations: More than 60% of Millennial and Gen Z consumers have discovered a new brand through BNPL, and 70% of them say that the availability of BNPL is an important factor in choosing a brand.
Source: Afterpay

Increased customer purchasing power: Retailers who adopt BNPL see an increase in average order value (AOV) per customer of more than 40%, enabling consumers to purchase higher-value products without straining their budgets.
Source: Klarna

BNPL benefits from different perspectives

1. From the customer’s perspective

• The service requires only a straightforward verification process after app installation.
• It does not require the complex credit checks and income verification typically needed for a credit card, making it a favorable option for consumers without a Social Security Number (SSN), with low credit scores, or no financial history.
• No annual or installment fees, no interest, and lower late fees compared to credit cards.
• It alleviates the burden of immediate payment, giving consumers the flexibility to manage their spare cash.

2. From the retailer’s perspective

• Increased conversion rates and revenue: Customers buy more frequently and spend more on average due to easy payment methods and interest-free installments.
• Immediate revenue realization: Merchants are paid immediately after a sale, benefiting cash flow management.
• Expanded customer base: BNPL can attract consumers who do not use credit cards and positively influence the sales of high-value items.
• Restored consumer sentiment: BNPL helps improve consumer sentiment, making it easier to purchase products that exceed budget constraints.

How it works for the beauty supply industry

Making purchase decisions easier

Shoppers are often hesitant to purchase non-essential items like expensive hair products or new beauty gadgets due to their cost. However, with a $50 product, using the BNPL option to split the payment into four installments reduces the immediate financial burden to just $12 per installment, leaving more room in the budget for other needs. This flexibility enables consumers to obtain the products they want when they need them, without the strain of paying the full amount upfront.

Increased satisfaction
When choosing between a $50 basic product and an $80 upgrade, BNPL simplifies the $30 price difference by breaking it into smaller, manageable installments of $8 each. This reduces the psychological pressure of the higher price, making it easier for consumers to opt for the upgrade they might have otherwise hesitated to buy. Moreover, shifting the focus from price to product features enhances the overall buying experience, leading to greater satisfaction.

Increased the average purchase amount

By implementing a minimum purchase requirement and offering a BNPL service, customers are encouraged to add extra items to their shopping cart beyond essential purchases. To meet the minimum threshold, they might opt for additional products like mascara or lipstick—items that are relatively inexpensive and often purchased on impulse. This strategy not only helps customers reach the minimum but also naturally increases the average purchase amount.

Attracting more customers

A customer without a credit card might hesitate to purchase a $50 skincare set if they have to pay the full amount upfront in cash. However, offering a BNPL option makes the purchase more accessible by allowing them to split the payment into four manageable installments. This approach appeals to customers with limited credit histories or those without Social Security numbers, encouraging them to shop and ultimately broadening the customer base.

Successful BNPL implementation example – Sally Beauty

According to a PYMNTS article, Sally Beauty reported an increase in average order value after introducing the Klarna BNPL option in 2023. The service has been particularly effective in attracting younger consumers, who are more likely to use BNPL services to manage their finances when purchasing beauty products. Following the implementation, Sally Beauty saw a 7% increase in e-commerce sales, totaling $34 million—accounting for 6.4% of its total revenue for the quarter. BNPL users also tend to make larger purchases, contributing to a higher average order value. “The BNPL service has helped us attract new customers and increase cart values,” said Denise Paulonis, CEO of Sally Beauty. Although Q3 revenue totaled $931 million, representing a 3.2% year-over-year decline, global e-commerce revenue increased to 8.9% of the total.

Key considerations for adopting BNPL

• Is your key customer base likely to prefer BNPL services?
• Will the expected increase in revenue be sufficient to cover the BNPL service fee?
• Can implementing BNPL enhance the overall customer experience?
• Does the BNPL system align with your long-term business objectives?

Buy Now Pay Later Q&A

1. What is the role limit of a BNPL provider?
2. Most BNPL providers handle the risk of overdue payments and assess customers’ creditworthiness, ensuring that merchants receive payment for their sales. It is essential to have a clear contract that specifies when the merchant is no longer responsible for unpaid amounts. Additionally, selecting a trustworthy BNPL provider is crucial for smooth operations.
3. What are the BNPL provider fees that merchants have to pay?
4. While BNPL service providers offer interest-free financing to consumers, they charge merchants a percentage of sales, typically ranging from 3% to 7%, as a fee. This rate is often higher than credit card fees, so merchants should carefully review fee structures and contract terms. It is also important to verify whether the terms fluctuate during peak seasons or discount promotions.
5. What happens if a customer is late with a payment?
6. Merchants typically do not need to worry about late payments, as the BNPL provider manages these situations. However, to prevent any confusion, it is advisable to clearly inform BNPL customers in advance about notices and procedures regarding late payments.
7. For which product price range should I consider offering BNPL services?
8. It is advisable to introduce BNPL gradually by focusing on specific product lines or price points. Start by applying the BNPL option to high-value or bundled products, then assess its effectiveness and potential risks. Based on the results, expand the offering incrementally.
9. How should I select a BNPL provider?
10. Each BNPL provider comes with distinct strengths and weaknesses, so it is important to choose one that aligns well with your store’s customer base. Research the provider’s technical reliability and customer service quality to ensure a trustworthy partnership that upholds your store’s reputation and enhances customer satisfaction.
11. What if a customer asks for a return or refund if they still owe money?
12. Clearly communicate your refund and return policy to customers using BNPL payments, and collaborate with your BNPL provider to establish integrated procedures for refunds and returns in advance. You might also consider limiting BNPL options for certain product lines or designating specific BNPL-only products that are less likely to be returned. Most major BNPL providers offer online systems to facilitate the return and refund process, making it easier for both customers and stores to track the status.