“Shop Now, Pay Later” is Becoming a Major Ecommerce Trend

Retailers have long found ways to increase sales by giving shoppers ways to pay over time. Layaway programs that enabled shoppers to make down payments for merchants to hold items until the consumer had paid in full first became widely popular in the United States during the Great Depression. In the 1950’s, the Diner’s Club introduced a new payment innovation, the credit card, which allowed customers to get their item or service right away, but pay the card lender back later. In the 1980’s TV shopping networks like QVC and HSN introduced their own financing solutions and popularized the advertising pitch: “this item can be yours for just four easy payments of...!” Now, fintechs are introducing a new innovative payment method that gives shoppers and merchants all the benefits of old pay overtime models, without any of the downsides.

New “shop now, pay later” solutions like Sezzle allow shoppers to pay for purchases in interest-free installments. The buyer is able to split up a purchase into four payments spread over six weeks. There is no additional cost to the shopper for paying with this method. The merchant sends the item to the shopper right away, and the solution pays the merchant upfront for the full purchase amount. The solution then collects the remaining payments from the shoppers and takes on all of the risk.

This payment method is taking the retail ecommerce industry by storm. More than 2,000 ecommerce stores have partnered with Sezzle so far. In other parts of the world, the “shop now, pay later” model is well established.  In some countries, it accounts for more than 10% of all online sales.  At the rate we are going in the US, this is soon going to be a standard payment method offered by every store. 

Why is this trend taking off so quickly? 

Millennials Want New Ways to Pay.

It may surprise you to learn that only one in three millennials owns a credit, according to a 2016 bank rate study.  There are many underlying factors driving this statistic - from the credit crisis of 2008, to mounting student loan debts for young people, to regulatory changes that made it more difficult for credit card companies to extend offers to those under the age of 21.  The key point for merchants is that payment behaviors are changing dramatically for young consumers.  Young shoppers are increasingly looking for alternative payment methods.  Merchants who offer only traditional payment methods risk leaving sales on the table.

For Customers, What’s Not to Love?

Think of the benefits to the shopper: they can either pay for the purchase all at once or break it up into four smaller payments, for the same price.  The solution is completely free to the customer.  Why would they not choose to pay over time?  There is no interest, no fees, and no potential for racking up credit card debt.  Payment schedules are automated, with a reminder sent the day before.  If the shopper wants to reschedule their payment they are able to do so at no charge.  When you think of the value proposition to customers, it’s easy to understand why they are flocking to this payment option.

Increased Conversions for Merchants

Two thirds of all online shopping carts are abandoned, according to the Baymard Institute.  The second most commonly cited reason was the cart becoming too expensive.  When customers see the total tallied up, they think twice.  Offering an installment payment solution that lets shoppers pay overtime can dramatically reduce cart abandonment rates.  For stores that have partnered with Sezzle, checkout conversions have increased by 38.7% for first time visitors.  Reducing sticker shock of a one-time purchase reduces cart abandonment, which means more sales!

This is a guest post by Chris Dolan, VP of Strategic Partnerships at Sezzle. Click here to learn more about Sezzle.  Or here to add Sezzle to your store.  Feel free to reach out to Chris with any comments or questions on LinkedIn.  

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