Retailers Turn to ‘Buy Now, Pay Later’ to Soften the Financial Blow of the Holidays

The season of joy can often coincide with the season of financial burden as people struggle to balance generosity with their budget. The average consumer is expected to spend $1,000 this holiday period, according to the National Retail Federation, with 7 out of 10 shoppers spending up to $300. For those who don’t have this money in hand, new payment services that allow customers to pay for their purchases after 30 days or in installments could ease the monetary strain.

Sixty percent of consumers are still using credit for their holiday shopping, yet the average repayment period for these items is 11 months, according to a report by Klarna and Finn Partners. Paying off these gifts just in time to purchase the next round of holiday gifts is a vicious circle, which explains why 75 percent of respondents said they were interested in alternative payment plans.

“Consumers are aware of the financial restraints during the holiday season and are interested in diversified payment alternatives, increased control and convenience when shopping,” said Michael Rouse, chief commercial officer at Klarna. “It is crucial for merchants to better understand consumer preferences and expectations, especially during a high-volume shopping period like the holidays.”

Buy-now, pay-later platforms aim to work for both retailer and consumer by giving the customer a product trial period before they need to pay while the platform assumes the financial risk; retailers receive the payments immediately. With the U.S. holiday returns industry amounting to $60 billion every year, buy-now, pay-later removes the customer’s need for refunds altogether.

“No money leaves her account until she decides to keep the item,” said Sebastian Siemiatkowski, CEO of Klarna. “That means a shopper no longer has to ask, ‘Where’s my refund?’ She can receive the item and return it if it is not suitable within 30 days, without ever handing over her money.”

For the items that a consumer does want to purchase, the installment payment plans provided by platforms like Klarna, Afterpay and Affirm mean that they can avoid a single financial hit. As 74 percent of people have admitted to forgoing a gift purchase or finding a cheaper alternative due to budget concerns, this kind of staggered payment plan could make such purchases more attainable.

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