Will buy now, pay later dominate future retail sales?

As inflation drives up retail prices for most products, consumers are looking for an easy and flexible way to buy the big ticket items they need or want.

With rising product prices, people may see their credit card balances and interest payments increase with inflation. In recent years, financial institutions and merchants have expanded the use of buy-it-now, pay-later consumer programs that are growing in popularity.

Under the typical BNPL plan, a customer purchases a product online, and in some cases in-store, with a minimum and maximum sale amount. The client then makes periodic payments which may be weekly, biweekly, possibly monthly, and in at least one case, up to a year. The payment plan is usually interest-free, with the only charges being late fees.

The most popular buy now, pay later service among users is PayPal. (PYPL) – Get the report from PayPal Holdings, Inc.Afterpay, Affirm (AFRM) – Get the Class A report from Affirm Holdings, Inc.Klarna and Zip Pay, according to a 2021 survey of 2,005 online customers by C+R Research.

PayPal’s Pay in 4 BNPL service partners with millions of online retailers, including Target (TGT) – Get target company reportbest buy (BBY) – Get the report from Best Buy Co., Inc.Tapestry (TRP) – Get the Tapestry, Inc. report. Coach, Uni Qlo and Bad Bath & Beyond (BBBY) – Get the Bed Bath & Beyond Inc. report.. Afterpay has BNPL partnerships with over 100,000 retailers such as Rite Aid (GDR) – Get the Rite Aid Corporation reportNordström (JWN) – Get the report from Nordstrom, Inc., Calvin Klein and Tommy Hilfiger. Affirm’s retail partnerships are also among the largest, including Amazon (AMZN) – Get the report from Amazon.com, Inc.Target and Walmart (WMT) – Get the report from Walmart Inc.. Klarna business partners include Macy’s, H&M, Coach, Abercrombie & Fitch (ANF) – Get Abercrombie & Fitch Co. Class A Report., Saks Fifth Avenue SKS. Zip’s retail partnerships include Best Buy, Apple (AAPL) – Get the Apple Inc.Nike (NKE) – Get the Class B report from NIKE, Inc.Reebok and Adidas.

Most BNPL plans are similar. PayPal, Afterpay, Klarna and Zip require payment at checkout. Affirm is a little different in that it has longer repayment plans of up to 12 months, negotiates interest rates, and doesn’t charge late fees.

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An example of these buy-it-now, pay-later plans involves electronics and appliance retailer Best Buy, which is teaming up with BNPL partner Zip. Under Best Buy’s BNPL plan with Zip, customers using the Best Buy app or desktop pay 25% of the cost of the product upfront, then the rest is paid in four installments over six weeks. No fees are charged at checkout. The only fees charged by Zip are late fees ranging from $5, $7 or $10 depending on the state of residence. No interest is charged. The plan is not available for in-store purchases.

Recent surveys show that the demand for BNPL services is growing among consumers. The size of the global buy now, pay later market in 2021 was $5.1 billion, according to a report by Grand View Research, and it is expected to reach $6.2 billion by the end of 2022.

The hottest fashion and apparel industry

The size of the global market is also expected to grow to $39.41 billion by 2030, according to a May 3 release from Grand View Research. This massive increase equates to a compound annual growth rate of 26%, according to the report.

The BNPL market in the United States was $1.4 billion in 2021 and is expected to grow at a compound annual growth rate of 24.3% from 2022 to 2030.

The hottest retail sector during the forecast period is expected to be the fashion and apparel segment, which is expected to register the fastest growth, according to the report.

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