It’s not an illusion. BNPL is proliferating globally – and maturing as a payment method, according to the annual FIS-Worldpay Global Payments Report 2023. The study finds that BNPL amounted to 5% of global e-commerce transaction value in 2021 and is expected to increase to 6% by 2025. In some global regions, that pace of growth is even more pronounced. In APAC and North America, BNPL share is projected to nearly double by 2025, from 4% to 9% in Canada and the US and from 1% to 2% in Asia. For Europe, BNPL share is slated to increase from 8% in 2021 to 12% over the same timeframe, and its adoption in MEA is expected to hold steady at 1%. The region most recently joining the BNPL party, Latin America, projects to have 2% BNPL ecommerce sales by 2025.
What is this seemingly ubiquitous payment process, and what is its appeal to consumers? And how can travel brands take advantage of BNPL (if they haven’t already introduced support for it) and ensure it fits their current payment strategies?
What is BNPL?
Let’s start with a basic definition. Buy Now Pay Later (BNPL) is a flexible form of short-term financing that allows consumers to pay for goods over time through interest-free installments. Despite all the recent visibility, BNPL is not actually new. For decades it was traditionally referred to as installment payments or Instalment Payment Plans (IPP). IPPs, however, are typically offered by or associated with a financial institution like a bank and are usually configured more like traditional lending instruments like a line of credit or a loan. The defining feature of BNPL is its relative lack of barriers for customers – no or limited credit checks and no lengthy application process.
The ease of use makes BNPL a powerful and transformative tool. When used correctly, it empowers individuals with greater purchasing power and reduces lifestyle biases. It puts time-based affordability within reach of customers without resources immediately at hand. It allows individuals to plan better and take advantage of discounts to stretch their budgets. At its best, BNPL promotes financial inclusion.
Many BNPL providers actively push out reminders via app notifications and other instant communication methods to remind customers of their payment status – an accommodating approach that serves to boost greater confidence in the BNPL model. In addition to customer-friendly industry practices, regulators across the globe are also taking notice of BNPL. As new regulations strive to ensure that the consumer receives a fair deal, it is important to understand the specific processes and fees structures BNPL service providers deploy and how they relate to emerging rules and guidelines. As regulatory bodies like the U.S. Consumer Financial Protection Bureau and the UK Financial Conduct Authority (among other global agencies) wade into the BNPL landscape, businesses that want to reap the benefit of offering this payment method must also consider how proactive a BNPL service provider is in approaching potential regulatory requirements.
The business case for BNPL
On the merchants’ side, the advantages of BNPL are related, if not similar. By expanding affordability and flexibility, BNPL is very efficient in terms of driving sales and conversion rates. Studies referenced by BNPL leaders like Uplift and FNPL have shown that the average basket value can increase by 20-40% when BNPL is offered, and the increase in conversion rates at checkout can be as high as 20%. BNPL also boasts extremely low fraud rates, higher revenue assurance and reductions in the volume of erroneous purchases and bookings due to payment issues.
For the airline industry, this expands passengers’ choices to include higher or more flexible class tickets and boosts the sale of ancillary products like seat upgrades or insurance. It can also help airlines meet the expectations of key demographics, like Millennial and Gen Z travelers who are eager adopters of BNPL and those travelers in specific geographies like Singapore and Kenya. That said, each airline and travel merchant is different. Because payments are a strategic part of the ticketing process (and because there is a complex patchwork of international regulations governing BNPL), introducing support for this payment method must be done with consideration.
Finding a travel-specific BNPL partner
Often, the best approach for airlines or travel merchants seeking to offer BNPL through their ecommerce channels is to partner with a reputable payment provider. It’s important to choose a stable partner that understands the business and prioritizes the customer journey throughout the booking flow from a payment’s perspective. They should also be able to offer a simulation model on the expected conversions and increased ticket value associated with BNPL. UATP, which specializes in payments optimization and has journeyed alongside airlines and travel merchants throughout the evolution of the aviation business, is one such partner.
Embracing payment flexibility is critical to any airline’s or travel merchant’s payments strategy. Travel brands that align with travelers’ shifts in preferred payment options will surpass their competitors in gaining market share. BNPL can be the critical key to unlocking a flexible payments strategy; having the right payments partner can help your business do so effectively and efficiently.
Written by:
Evelyn Ng
Manager, AFP Sales, Asia-Pacific
UATP
