In partnership with PayPal
Smiling attractive young african woman wearing autumn coat walking outdoors, using mobile phone

As retailers and brands close out their books and begin reporting quarterly results, 2020 is shaping up to be one for the record books. The COVID-19 outbreak has not only amplified online shopping as a consumer preference but has forced companies to completely rethink their digital strategies to meet new — and still emerging — consumer demands.

This includes when, where, and why consumers (especially Millennials) shop as well as how they pay for those transactions. But it was the upward trajectory of online shopping that has been most transformative across the industry.

According to a recent PYMNTS research study, the global pandemic accelerated e-commerce adoption by five years. During the first half of 2020 alone, shoppers in the U.S. spent about $347 billion online as compared to $267 billion during the same period in 2019, according to the same study.

The robust growth of online shopping also fueled the demand for touchless payments, curbside pickup and BOPIS (buy online, pick up in-store). And while stuck at home and spending more time online overall, consumers did something else that was extraordinary: they shopped for new types of products, explored new and different brands and welcomed different ways of paying, such as alternative financing options.

Fresh consideration

According to recent data from Salesforce, this past holiday shopping season was dominated by online shopping while also revealing the growth of buy now, pay later. “With consumers looking to pay for big ticket holiday gifts in installments, buy now, pay later usage saw a year-over-year increase of 109 percent, with the biggest increase taking place the week before Christmas,” Salesforce noted.

These shifts in consumer preferences also include how shoppers shop for products. It’s cashless, online and curbside and, increasingly, done on a mobile device. According to Adobe’s latest holiday research, smartphones garnered 40 percent of the holiday season’s e-commerce growth.

Greg Lisiewski, vice president of Global Pay Later at PayPal, said the consumer appetite for novel financing options “grew over 2020 as more consumers went online to do their shopping, especially among Millennials.” Between the onset of the pandemic in March of 2020 through to September 2020, according to research from PYMNTS, the interest in using buy now, pay later solutions among Millennials (those aged between 24 and 39) rose by 19 percent over the 6 month study, with particular interest rising among the so-called bridge Millennials who are aged 32 to 41.

Attractive asian female is typing messages on a laptop while sitting against the wide windows of a coffee shop. a hipster girl is working on a portable computer in a cafe.

The robust growth of online shopping also fueled the demand for touchless payments, curbside pickup and BOPIS.  JKstock -

In the PYMNTS research on Black Friday 2020, 3.7 percent of online Black Friday shoppers used buy now, pay later for making purchases. The research also showed that 42 percent of Generation X shoppers (who are aged 40 to 55) and 40 percent of Millennials (aged 25-40) took advantage of buy now, pay later. And while shoppers tend to use buy now, pay later for both discretionary purchases and staples, Lisiewski said no category dominates the payment option like apparel does.

Flexible fulfillment

Buy now, pay later options is resonating with consumers because it offers flexibility not found in other modes of credit and finance. “Even though more than 50 million Americans have filed for unemployment since the COVID-19 pandemic began, nearly one in five people say they are spending more now than prior to the outbreak and many have gone way over budget,” Lisiewski said, adding that Millennials, subsequently, “are looking for budget-conscious and financially responsible payment options they can trust.”

“When we talk to our customers, they tell us they want to stay within their means and not blindly put charges on credit cards or accept unclear financing terms,” he said, adding that PayPal’s Pay in 4 solution is appealing because it is an “alternative way to finance purchases without incurring fees and debt, from a platform consumers know and trust.”

Last minute top sellers. 

Aside from the emergence and appeal of buy now, pay later, PayPal is also seeing its users continue to embrace cashless and touchless financial solutions. Lisiewski said in recent surveys of its users, “we’re seeing as much as 50 percent of customers saying they will continue to shop digitally for things traditionally shopped for in-store in a post COVID world, including groceries, restaurants and even big-box retail.” Welcome to the new retail.

“As it relates to in-person shopping, the need for touch-free payments is more important than ever before as consumers and merchants move away from handling cash or touching keypads due to strict social distancing requirements and health concerns,” Lisiewski said.

Looking ahead, the pace of online shopping growth is expected to continue this year. This is what’s driving the rapid digitalization of retail today. For its part, PayPal is working with retailers and brands to adjust to this new reality.

“In the wake of the COVID-19 pandemic, retailers have needed to quickly adapt to changing consumer shopping behaviors, with a shift to online shopping and digitized in-store experiences,” Lisiewski explained. “With physical stores shutting down, social distancing in effect, and tightening wallets due to economic uncertainties of this time, PayPal has been helping merchants and consumers adapt to digital commerce, and has mobilized around a few key product areas to better support merchants and consumers during this uncertain time, including [PayPal] pay later” solutions.

Affording luxury

Digging deeper into the psyche of Millennials and their financial preferences show that they are more apt to own credit cards than other demographics. And while almost 90 percent of this cohort have credit cards, according to PayPal, they also have a unique set of priorities in regard to purchasing online, specifically when it comes to flexibility and budgetary control.

“This is why various pay later online financing options are gaining traction with this demographic,” Lisiewski said adding that research shows that Millennials “are more likely than other generations to employ multiple payment methods.”

The motivations behind using buy now pay later include its transparency, and empowering users with greater spending control and convenience. For Millennials using buy now, pay later, the option aligns with their budget-conscious and financially responsible mindset. “They want to stay within their means and not blindly put charges on credit cards or accept unclear financing terms,” Lisiewski said.

Millennials are also using buy now, pay later as a way to enter the luxury market. Whether it is a $500 designer handbag or a $5,000 diamond necklace, buy now, pay later helps open the door for professional, career-focused Millennials to create a luxury lifestyle. It’s noteworthy that 40 percent of Millennials are interested in using pay later solutions generally, but only if they were more widely available in digital wallets, Lisiewski noted, adding that luxury brands will need to “meet Millennials where they are, and make it easy to checkout using digital wallets that offer flexible pay later options.”

Lisiewski has three key tactics for brands and retailers looking to win the hearts and wallet-share of Millennials:

Create a seamless checkout experience that takes friction from the transaction out of the equation as companies like ride sharing companies have mastered. “The actual payment part of the buying experience takes away from overall shopping experience,” he said. “If you can minimize the transactional part of the experience, you can improve the overall buying experience.”

Give millennials the financial flexibility and responsibility they desire with multiple payment and financing options while giving them repayment options (credit, debit, ACH) and different repayment schedules to fit their individual preferences.

Offer in-store and online financing options that give customers a more anonymous and personalized experience. “Consumers can secure flexible financing options from their fingertips that fit their needs,” Lisiewski said.

From a value proposition perspective, Pay in 4 from PayPal helps merchants and brands drive conversions, revenue, and customer loyalty without taking on additional risk or paying any additional fees while enabling consumers to make a purchase and repay over four payments, interest-free*. With 15-plus years in the online financing space, PayPal’s proposition offers predictability, scale, trust, and ubiquity “to an otherwise unpredictable and fragmented marketplace,” Lisiewski said.

By the numbers.  courtesy image.

Fully integrated

“The great thing about Pay Later for merchants is that it is works with their existing PayPal integration and leverages all of the investment they already made in integrating PayPal as a payment type, from settlement to money movement to exception processing — all at no additional cost or risk,” he added. “The PayPal platform enables merchants to access all their payment and commerce needs within one trusted platform.”

For consumers, they need flexible options to manage their cash flow but currently “face an unpredictable array of choices,” Lisiewski said. That may be an understatement. A quick search of “buy now, pay later” in January 2021 generated about 3,440,000,000 results on Google.

Lisiewski said consumers “find themselves presented with an increasingly crowded, unreliable array of smaller, newer installments providers, many of which are operating on venture capital-backed funding and lack brand ubiquity, trust, and security.”

Too many choices can confuse consumers and make it more difficult for them to make decisions. As a result, consumers are looking for convenience, wide merchant acceptance and security. “Merchants need to ensure that the financing services they have available are transparent, convenient, and offered by a trusted provider,” Lisiewski said.