COVID-19 has been a great reminder to retailers that the ability to create and establish a real human connection with customers is not only key but it’s essential to driving real customer loyalty and sales.
But too often retailers focus on fine-tuning their marketing and advertising messaging and miss assessing and acting on one critical component: how customers pay for their goods and services.
While retailers have looked to enable easy checkout features such as buy buttons like Visa Checkout, many retailers tend to overlook what form of payment customers tend to favor these days. And these days, younger consumers, more specifically, Millennials and Gen-Z prefer to pay with their own money rather than using a credit card.
According to buy-now-pay-later service Afterpay, in 2020 alone, just about 90 percent of their global customers opted to pay using debit cards to make purchases. But, there’s more to it than offering credit and debit payment options – consumers are increasingly looking for payment options that are budget-friendly and provide flexibility.
It’s thus incredibly critical for retailers to truly understand their customers’ shopping journeys from beginning to the end and what obstacles they may face before completing their purchase. Typically, price is a huge factor for customers, so showing a price breakdown on the product page can be extremely beneficial and can ultimately increase sales conversions.
According to Melissa Davis, global chief revenue officer at Afterpay, “shopping cart abandonment makes up $18 billion in lost revenue opportunity for retailers each year, which creates a great opportunity for retailers to offer consumers choice when it comes to payment flexibility.”
Davis also notes that while Afterpay has seen a significant shift to the use of debit, the company has also witnessed new consumer segments join, confirming the normalization of the buy-now-pay-later option amongst all demographics.
So, while buy-now-pay-later services like Afterpay and Klarna were made to appeal to Gen-Z and millennials (the average Afterpay customer’s age is 33), as these demographics tend to be more budget conscious and debt-averse than older generations, these services are also gaining traction among older consumers, especially among those with higher incomes.
In June, Retail Bum reported the paradigm shift toward online shopping, with millennials and Gen Z as well as older generations such as baby boomers (those roughly between the ages of 56 and 74) embracing digital ways to shop and pay. And to serve those with larger incomes, buy-now-pay-later services are becoming far more enticing for retailers to offer.
The buy-now-pay-later option can truly help retailers grow sales conversions. In fact, according to e-commerce payment provider PPRO, 42 percent of U.S. shoppers will forgo their purchase if their preferred payment method is not available, whereas 18 percent of U.S. consumers will confidently use alternative payment methods like Klarna or Afterpay if they were referred to them by family and friends.
And with this type of flexibility option, customers are more likely to add more items to their cart and less likely to return, which ultimately translates to increased average order value (AOV).
Flexible payment options also help keep those purchases at the top of mind for the customer, leaving them to use the product or service more, ultimately creating a more positive association with the retailer and leading them to purchase from the retailer more often.
In July, Afterpay announced that select retail stores in the U.S. would begin offering its flexible payment option as another alternative form of payment where customers could pay for their in-store purchases in four installment payments, without having to take out a traditional loan or pay upfront fees or interest. The in-store process is noted to be similar to the current online Afterpay process.
Afterpay also recently announced its launching of an invite-only loyalty program, Pulse, aiming to increase consumer loyalty and driving greater overall revenue for retailers. The program came about as the payment platform sought to reward conscious spenders and encourage financial wellness.
“Until today, there has been no way for debit card users to earn rewards or benefits for the way they pay. By offering Pulse, we’re rewarding consumers for paying in a way they prefer, with their debit cards, while also discouraging the use of expensive loans with interest, fees and revolving and extended debt.”
Pulse creates a unique opportunity for retailers where they can not only increase sales but also gain new customers by targeting and rewarding a growing demographic for their preferred payment method.
Retailers who have already enabled and partnered with Afterpay have already seen a number of benefits including increased average order size with larger basket sizes with lower return rates. They have also seen a 45 percent to 80 percent increase in new-to-file customers, a 50 percent to 200 percent increase in units per transaction and an 8 percent to 18 percent decline in returns.
Overall, they have witnessed increased customer satisfaction and repeat customers.
The demand for flexible payment options has significantly increased over the past few months and brands and retailers tuning in to those customer demands are more likely to drive real customer loyalty and, ultimately, sales.