Buy now, pay later: A lure for Generation Z with great prospects

One of the most renowned British makeup artists Charlotte Tilbury has built one of the most recognized beauty brands over the past nine years, adored by customers in Europe and across the pond. Although Tilbury has established herself in the competitive market through talent, product quality, and a successful marketing strategy (especially digital), she has not managed to reach a satisfactory number of younger generation customers. It is true that her products are financially out of reach for most representatives of Generation Z (especially younger ones), but the brand’s founder and her team are aware that without the youth, there is no future.

To attract the target consumer group aged 18 to 24, which makes up only 6.5 percent of the total digital audience, the Charlotte Tilbury brand has introduced a new payment model – buy now, pay later (BNPL) or 'buy now, pay later', which involves paying a smaller amount upfront, with the remainder charged in installments. The tactic has proven successful, and if statistics are any indication, this new trend in e-commerce is still far from realizing its full potential.

Namely, on a global level, the BNPL model accounted for only 0.4 percent of total digital payments in 2016, nine percent last year, and as predicted by Financial Brands, it will account for nearly 25 percent of digital transactions by 2026. Additionally, the largest British BNPL service provider, Klarna, has doubled its user base in the last two years and reported having around 15 million users by the end of November 2021.

Smaller financial risk

The increasing popularity of this trend in e-commerce can easily be justified by the fact that, just like installment purchases, it allows the customer to spread the cost. Since the BNPL model typically has no extra fees, customers who have been burned by credit card purchases for some reason do not want to use them or lack experience, will gladly try this method of purchasing. It has, as practice has shown, been particularly appealing to younger customers (who do not have the option of contracting with credit card companies).

According to data coming from the U.S., the BNPL model is most commonly used by customers aged 18 to 24 (61.16 percent have used the service), followed closely by those aged 25 to 34 (60.08 percent) and customers aged 35 to 44 (60.58 percent). Interestingly, baby boomers currently use the ‘buy now, pay later’ service the least, but this target group is growing the most.

Specifically, from June 2020 to March 2021, the number of those over 54 paying with BNPL has doubled. As the company Drip recently noted on its blog, the biggest drawback of this payment method is that it is (still) a lure for scammers, but also that it leads to unhealthy consumer habits as customers buy with money they do not have.

A good option for the young

Given the growth of this model’s share in the total volume of e-transactions, the advantages for consumers far outweigh the disadvantages. Research has shown that 45 percent of customers choose BNPL because it allows them to purchase a product or service 'beyond their budget'. About 36 percent consider this model a better alternative to credit card payments or taking out loans. Although they still risk buying 'without money', they estimate that the risk is significantly lower than when using financial services, paying fees, interest, and so on.

Customers who experienced the 2008 crisis are more cautious when it comes to borrowing, making BNPL an ideal solution for them, especially for smaller purchases. And of course, there are the young – credit unworthy, for whom the option, which in their version sounds something like 'buy now, think about it later', is ideal if they want to get their hands on trendy products for which they do not have enough money. Charlotte Tilbury, by collaborating with Klarna, has satisfied their appetites, and it is only a matter of time before other e-commerce retailers with BNPL options meet their loyal customers.