Buy now, pay later became one of the primary retail stories during Covid. Consumers used the method as an alternative to credit cards with high-interest rates, choosing a risk-averse approach to fund their purchases at a time when finances were tight.
In fact, buy now, pay later is changing the way we think about “fast credit” in general, with a recent report from Amadeus finding that, in some cases, more than 85 per cent of adopters use a debit card to make repayments. With all its success so far, it shouldn’t come as a surprise to learn that buy now, pay later will account for three per cent of the global ecommerce market within the next three years.
The travel industry, in particular, can benefit from the buy now, pay later approach as it recovers from Covid in 2021. Its flexibility can act as a way to break barriers, removing friction at checkout and increasing sales for travel operators selling holidays.
Flexibility will play an integral role this year for unlocking pent-up demand in the travel industries. And in this guide, we’re zeroing in on how buy now, pay later can help the sector reach its goals in 2021 and beyond.
What is buy now, pay later?
Buy now pay, later allows customers to finance their purchases, agreeing to pay the overall sum over instalments. It has been a staple of commerce in the US and South American markets for years and has recently made its way to Europe.
Momentum is building in the sector: it’s set to grow by 39 per cent year on year, with major brands likely to double their market share by 2023. The shift in the retail landscape, coupled with the pandemic’s impact, has opened a space for this particular market, which offers a safer option than accumulating debt through credit cards with high-interest rates.
Buy now, pay later is particularly popular for luxury purchases. According to research from Raconteur, forty-six per cent of consumers said they were more likely to purchase luxury items if they were offered the option of paying in instalments.
However, it’s also becoming more frequent in regular buying activities, be it clothes or furniture. More people are also using buy now, pay later to fund their holidays, whether it’s a five-star trip to the Seychelles or a quick city break.
The changing face of retail payments
The digital economy has brought sweeping changes as it overtakes physical sales in several different markets. Today, consumers expect a seamless and transparent payment process that reaches across channels and provides a streamlined checkout experience.
Merchants are expected to deliver smoother and secure journeys that don’t involve taking up the customer’s time. Buy now, pay later supports such methods and offers a better checkout process, especially in the travel industry, where flexibility can be the difference-maker between abandoning a purchase and booking a dream getaway.
The problems with travel payments
Even before Covid, travellers experienced issues with payment processes when it came to booking holidays. The Amadeus report also reveals that the average person spends between £1,500 and £2,500 on holidays annually, representing a significant portion of their overall leisure spend. This has led travellers to look for ways to offset the cost of their holidays.
It’s an issue that won’t go away, with Millennials and Gen Z the primary sources of consumers who prefer spreading the cost of their entire trip without having to use credit cards. As these key demographics become more influential buying personas, brands will need to adapt to meet their needs and offer flexibility.
Why buy now pay later benefits the travel industry
In the wake of Covid, the travel sector is preparing itself for a purple patch in 2021 as pent-up demand to go on holiday is unleashed and travellers find themselves globetrotting once again. Yet, even the simplest of trips could become an expensive luxury.
According to some estimations, the travel industry could lose almost £750bn from the pandemic. Therefore, travel costs may well increase to make up some of the shortfalls. As a result, customers will be faced with a dilemma, as increasingly expensive travel prices many out of the market.
Buy now, pay later can bridge the gap with alternative methods for travellers, safeguarding them from missing out on holidays by offering the ability to spread the costs. From a travel brand’s perspective, buy now, pay later provides a frictionless checkout experience that enhances sales by offering financial flexibility.
Friction was already one of the main issues slowing down customer transactions in the travel industry. From multi-party purchases to new regulations, customers are finding it harder to go through a one-click checkout process that is becoming more common in other industries. The result is a drop off at the most crucial stage of the buyer’s journey.
One way to combat this is with flexible payment options and by removing the checkout stress test. Doing so will allow brands and merchants to keep their checkouts relevant while providing transparency to their customers.
Some of these options include mobile payments and credit offerings such as buy now, pay later. By providing the flexibility found with better payment methods, brands can adopt a more agile approach at checkout and help customers go through the process with ease and transparency.
An increase in payment options leads to higher conversion, which results in an uptick in sales. Travellers who can offset the cost of their holidays are more likely to take the plunge and book that once-in-a-lifetime trip or spend a little extra on luxury accommodation, safe in the knowledge they can pay it back in a responsible way.
The Amedues report also states that two in three respondents said they were more likely to buy from a travel provider if it offered them the chance to pay in instalments. Over half of those respondents went on to say they would consider buying higher value travel items if the opportunity to spread the costs existed.
For travel brands, the buy now, pay later options creates an opportunity for more robust relationships with customers. Flexible payment can help increase bottom lines because travellers don’t feel the burden of relinquishing a large sum of money in one sitting.
Travel without friction
Flexibility will play a major role in the recovery from Covid, and travel brands and merchants have an opportunity to set the tone. We’re already seeing an increase in flexible travel itineraries to meet the complications of travelling during a pandemic. But once travel becomes more accessible, brands will need to encourage people to book their next trip and get excited about going away again
Learn more about how Fly Now Pay Later can help you offer flexible finance options at checkout, and increase how your customers pay for their holidays.