Why Flexible Payments Empower Shoppers During Difficult Economic Times | Coronavirus Series


Editor’s note: This article is a contribution from Maddy Gaiman, partner marketing manager at Klarna, an online payment solutions app. 

The last few months have put a strain on the way we normally live our lives, and as such, they’ve become a landmark for shifting consumer behaviors. Everything is different and the pandemic is serving as a catalyst for change. 

Consumer shopping behavior has evolved, and retailers are laser-focused on investing in ecommerce for both the online and offline customer experience.

Categories such as footwear, athleisure, and apparel picked up serious steam as consumers adjusted to stay-at-home conditions. Now, they’re transitioning outdoors as the country reopens and new categories of spending are seeing an uptick.

Services like buying online and picking up in-store, contactless checkouts, and installment payments are nothing new, but the pandemic has caused brands to accelerate their use of them.

Looking forward, these tools will be key to bridging the omnichannel gap, empowering consumers to buy what they need, and helping retailers continue to grow sales. 

Buy now, pay later

Over the last few months, half of US consumers have used a buy online, pickup in-store shopping method to bring home everyday items. And apparently, buy now, pay later is having a moment. As retailers moved exclusively online, buy now, pay later players saw a surge in demand.

With a buy now, pay later option, consumers can purchase an item immediately and pay for it over time.

This flexible option is particularly helpful since shoppers can spread their payments over several weeks and have more room than normal to make purchases during their monthly credit card billing cycles.

Interest-free installments are considered consumer-friendly credit, which can be especially helpful in times of economic downturn.  

Because installment payments make it easier for consumers to shop, they can help retailers increase sales. In the current setting, they’re a valuable way to help businesses get back on track and increase sales volume.

Offering installment options at checkout can help increase cart conversions (the number of shopping carts started that end up as purchases) and average order values.

Many brands that have used alternative payment methods, like a buy now, pay later option, have seen conversions increase by more than 30 percent and average order values increase by more than 45 percent, according to Klarna’s data.

Klarna has been analyzing consumer spending behaviors within its shopping app in the US to identify what categories audiences have been shopping for using flexible payment options, and how their spending is shifting throughout the pandemic.

The app data revealed four distinct shopping phases in the first few months of COVID-19:

    • Stock-up (i.e., “We need food for shelter-in-place, and so does our pet.”); spend in the Pet Food category has increased 75 percent.
    • Settle in (i.e., “I can’t see my friends, but if I get an Xbox we can still hang out.”); spend in the video games category has increased by 180 percent, especially among millennials and Gen X-ers.
    • Let’s do something (i.e., “I’m getting a little stir crazy in this apartment. I should start running again.”); spend in the running shoes category has increased 105 percent.
    • Stimulus (i.e., “I will use this to buy something nice for myself.”); spending in categories like jewelry and self-care have mirrored holiday shopping levels.

Now, new phases are emerging:

  • Summer’s here (i.e., “As the weather warms up, I want to upgrade my wardrobe for the changing season.”); spending on accessories and apparel is up 65 percent
  • Travel (i.e., “I want to move around again.”); spending in the airlines and hotels category is up 400 percent since March 2020

As travel resumes, apparel bounces back, and stores and businesses reopen, the future of the in-person checkout will be one that is free of cash, lines, paper receipts, and stationary hardware.

Contactless payment services like Apple Pay and Google Pay, which don’t require touching a terminal, are expected to proliferate, as are other mobile-based payments that borrow from online shopping,” wrote Maghan McDowell for Vogue Business. 

Enabling customers to pay in installments, both online and off, will continue to be more relevant than ever as wider demographics move away from revolving credit lines, accruing debt, and compound interest, towards more flexible options that allow for financial control and stability. 

“Consumers are looking to pay for things in a smarter way that lets them manage their finances without having to use credit options that come with interest, fees, and revolving debt,” said David Sykes, Head of US at Klarna. 

Final thoughts

Since many US consumers cut back on spending during the COVID pandemic, flexible financing products are proving to be more attractive. Consumers want friendly, safe, and convenient ways to pay, both online and in-store.

A $60 tee shirt might not seem so out of reach if you’re paying in $15 increments, and merchants are willing to pay for buy now, pay later providers if it means they’re driving sales.

Buy now, pay later and alternative financing options are having a moment: they’re empowering consumers to buy what they need and helping merchants continue to grow in a volatile economic environment.

Looking for more information to help you adjust your marketing strategies as you navigate the coronavirus crisis? These resources may be helpful. 

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