As the global economic recovery continues, holiday shoppers are cautiously optimistic. A recent PwC report found that consumers plan to increase spending by 7% this year, averaging $1,530 for gifts, travel and entertainment. Despite plans to spend more, many shoppers, especially young, budget-conscious shoppers, remain worried about affording the holiday season. This intention to spend more while being mindful of ongoing financial obligations may explain the boom in use of ecommerce instalment payments among Gen Z and Millennials.
Nearly 6 in 10 younger consumers say they are leaning on instalment plans like buy now, pay later (BNPL) to relieve financial stress this holiday season. BNPL platforms are one of the key trends driving higher spending this year and are expected to bring in $17 billion in online spending during the holiday season alone.
In this article, we will cover the rising popularity of instalment payments among younger generations. First, we will discuss the forces fueling this trend and highlight the impact of instalment plans on purchase decisions. Then we will explain how businesses can maximise growth by catering to this shift in shopping behaviour.
What is Driving the Popularity of Instalment Plans for the 2023 Holiday Season?
Consumer shopping habits are always in flux. But the COVID-19 pandemic left retailers guessing when, where and how to sell their products. So why are a growing number of consumers across the globe turning to BNPL payment plans? And why now? Let us take a look at the forces driving the instalment plan trend.
Young Shoppers are Under Financial Stress
In the wake of inflation and economic uncertainty, many young consumers are dealing with mounting financial stress. These stressors are only exacerbated as the holiday season approaches. Here are a few statistics that highlight the issue:
- More than 66% of consumers say the holidays contribute to “undue financial stress.”
- As of Q2 2023, the average U.S. credit cardholder had $6,568 in credit card debt — up from $5,963 in Q2 2022.
- 65% of Gen Zers and 74% of millennials say they are financially further behind than earlier generations were at their age.
- Because of inflation, younger generations are saving less for emergencies, taking on more credit card debt and contributing less to retirement accounts.
Since instalment plans allow shoppers to pay off purchases over time, they can be a source of relief from the financial burden that comes with holiday shopping.
Ecommerce Instalment Plans Are Easy to Use
In comparison to other payment options, instalment loans are incredibly easy to use. BNPL plans are conveniently displayed at the online checkout, and the application process only requires a few basic pieces of information. Users can typically split purchases into four to six monthly payments or instalments, and payments are made via automatic bank transfer. Even more importantly, BNPL payments are typically interest-free and approval usually only involves a soft credit check or none at all.
This convenience factor plays a huge role in the growing popularity of payment plans. When asked about the reasons for using BNPL, 45% of people said they use it because it is easier to make payments, and 44% said they use it because it offers more flexibility. Another survey found similar results, with 60% of consumers saying they prefer BNPL because of the ease of set payments, simple approval process and lack of interest charges.
Instalment Plans Are More Transparent
In an uncertain economy, Gen Z and Millennial shoppers are wary of piling on credit card debt. For this reason, they are drawn to the transparency of instalment plans, which make it clear exactly how long it will take to pay off a big purchase. In fact, 74% of instalment plan users say they choose this payment option because it helps them manage spending. This statistic rises to 78% when it comes to shoppers who plan to use instalment payments during the holiday season.
The Impact of Ecommerce Instalment Payments on Purchase Decisions
Ecommerce instalment payments are shaping consumer behaviour and purchase decisions in a number of ways. As the payment option continues gaining momentum, it is attracting new customers and increasing average order value, conversion rates and purchase intent.
Attracting New Customers
Although instalment plans are most popular among young shoppers, they are attracting customers across all demographics. According to the latest research, plans like BNPL are also growing in popularity among older consumers. Some shoppers are drawn to BNPL to improve their credit score or take advantage of interest-free shopping.
Here are some statistics about instalment plans and holiday shoppers:
- 11% of female shoppers and 8% of male shoppers plan to use the service during the holidays.
- 15% of Black shoppers will use a BNPL service during the holidays, along with 14% of Hispanic shoppers, 8% of white shoppers and 14% of shoppers from other races.
- 12% of shoppers who earn less than $40,000 per year will use BNPL tools during the holidays.
Increasing Average Order Value, Conversion Rates and Purchase Intent
When implemented properly, ecommerce instalment payments can help drive sales by increasing average order value, conversion rates and purchase intent. One PYMNTS study found that 78% of consumers “strongly agree” that instalment plans allow them to make larger purchases. Instalment plan provider Splitit found that businesses can typically increase average order values by 50% after implementing BNPL payment options.
Likewise, the Association of Consumer Research found that offering instalment plans can “lower the pain of payment.” Reducing that pain helps to increase purchase intent and total amount spent.
How to Successfully Implement Instalment Plans: 3 Tips for DTC Brands
Instalment plans offer retailers a wonderful opportunity to capture market share and improve the customer experience during the holidays. But they must be strategically adopted in order to truly maximise the potential.
Here are some key tips for successfully implementing instalment plans as an ecommerce payment option for the 2023 holiday shopping season:
Advertise Ecommerce Instalment Payment Options Before Checkout
Timing and positioning are important considerations when adopting instalment plans. Research shows that consumers want to know their instalment plan options before they reach the checkout since it influences what and how much they purchase. Brands should take note and be sure to share their BNPL offerings early in the shopping process.
Choose the Right BNPL Platform for Your Target Demographic
There are dozens of BNPL platforms used around the world, and popularity varies by country, age group and socioeconomic demographics. For example, PayPal Credit is the most popular instalment plan service in the U.S., with 57% of consumers saying they use the platform. In contrast, Klarna is by far the most common BNPL platform in Europe. ESW clients benefit from global expertise across all payment options. We help select the right mix for each market and target audience.
Consider a Mobile-First or In-App Approach
In-app purchases increased 37% from Q3 2022 to Q4 2022. In addition 80% of surveyed respondents said they planned to shop via mobile apps during the 2022 holiday season. Retailers can expect the same trend this year, since mobile is expected to drive 51.2% of all online spending in the 2023 holiday season.
For this reason, retailers should prioritise an instalment platform that is easy to use from mobile devices. If possible, the instalment platform should be integrated with the retailer’s mobile app. Integration makes it easier for consumers to manage holiday spending right from their phones.
Grow Your Customer Base with Ecommerce Instalment Payments
Instalment payments are expected to make up about 25% of all global ecommerce transactions by 2026. That makes them an excellent way for retailers to capture new audiences and better compete for young shoppers’ business.
For millennials and Gen Z, instalment plans offer more convenience, ease of use and transparency than traditional credit cards. They are often interest-free and do not require a hard credit check. Those benefits make budgeting for holiday shopping easier.
Looking to draw more shoppers during the holiday season? Contact ESW to learn more about our DTC ecommerce platform that has instalment payment services built into the checkout process. With ESW, you can deliver a hyper-local ecommerce experience that delights customers around the globe.