Buy Now, Pay Later Poised to Fund Major Chunk of Holiday Spending

Jennifer Bringle
·3 min read

The proliferation of buy now, pay later plans such as Afterpay, Splitit, Affirm and Klarna have changed the way many consumers shop, allowing them to make larger purchases sometimes without using a credit card or traditional loan. And those services will likely fund a large percentage of holiday season purchases this year, according to reports from Splitit and Square/Afterpay.

According to the Splitit study, which was conducted by retail analytics company PYMNTS, more than half of Gen Z and millennial shoppers plan to increase their use of installment plans for holiday shopping this year.

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The study found that nearly one-third of shoppers would consider purchasing a bigger-ticket item if they could pay in interest-free installments. And 64 percent of consumers earning more than $100,000 annually favor installment plans.

“As we move into the critical holiday shopping season, it’s imperative for retailers to pay as much attention to their checkout experience as they do to their merchandise selection,” said Nandan Sheth, Splitit CEO. “Interestingly, our study showed that high earners would utilize installments more if they were attached to their favorite bank-issued credit card, without the need to apply for a new loan. Retailers will miss out on sales if they do not capitalize on the evolving consumer behavior to expand their market reach.”

The Splitit/PYMNTS study also found that 60 percent of all shoppers used some type of installment payment plan over the past year, with Millennials leading the charge at 72 percent. And 62 percent of Gen X and 46 percent of Boomer shoppers used buy now, pay later plans.

Clothing and accessories outpaced home furnishings and appliances in categories where shoppers used installment payments, at 40 percent and 30 percent, respectively. Auto parts followed at 21 percent, with building materials and garden supplies at 16 percent.

The Square/Afterpay study found that 34 percent of consumers plan to spend more this holiday season, with millennials outpacing all other generations at 44 percent. And looking at projected spending by category, 20 percent of consumers plan to purchase clothing, shoes and accessories, on par with gift cards (also at 20 percent).

With that in mind, retail businesses have higher expectations for this holiday shopping season. According to the survey, 71 percent of Square sellers say they expect sales to increase over last year’s holiday season, and 72 percent don’t plan to shift their discounting strategy significantly with an average discount of 15 percent. However, many analysts expect low retail sales growth this season, possibly the worst in five years.

Looking at buy now, pay later options, 21 percent of consumers would consider using them for holiday shopping, with millennials most likely to do so at 35 percent. According to the study, 40 percent of those who use installment plans do so to help budget and manage money during the holiday shopping season.

The Square/Afterpay study also looked at the impact of artificial intelligence (AI) on holiday shopping this year. It found that 24 percent of consumers have used a virtual assistant to help with shopping over the past 12 months, with Gen Z and millennial shoppers adopting the technology at the fastest rates, at 36 and 35 percent, respectively.

Businesses also reported increasing their use of AI to manage tasks such as marketing (54 percent) and inventory (29 percent).

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