Fintech creates new opportunities for UK businesses
With belts tightening and prices rising, consumers are scrutinizing household spending, and the holiday season is no exception. Clearpay is recent Party message Research shows that nearly half of shoppers (48%) are cutting back on general purchases to make ends meet this season. With sales volumes still below pre-pandemic levels, UK retail is feeling the impact.
There have been numerous reports in the media about how consumers are using short-term, interest-free payment options like BNPL to manage their spending, but other benefits of BNPL are often overlooked.
At the current rate of growth, BNPL could account for 10% of all UK e-commerce spend by 2024, and it’s clear why this payment method is becoming increasingly popular. A win-win for both consumers and retailers, BNPL offers a budget tool for consumers with built-in protection to protect them from overspending. The payment flexibility means they can avoid using credit cards that often come with interest and the risk of revolving debt.
With two in five customers planning to spend less this Christmas season, and one in five looking to buy more affordable gifts, every customer counts1. Ensuring protection and growth for UK retailers is vital as they struggle with digitalisation and the changing face of the high street, while staring down the barrel of a tough financial year.
Innovative fintech that is adapted to how next generation consumers prefer to shop are one-way businesses that want to drive revenue through Christmas sales and secure their future next year and beyond. Seven out of ten Britons would prefer to receive fashion or clothing this festive season1, which explains why retailers from household names such as Boden, M&S and Footasylum to small independents and sole traders offer BNPL to get ahead.
Customer experience: It’s about choice, transparency and control
The credit card model of profiting from customers falling into debt has been exposed and BNPL is showing that it is possible to have a deferred payment model that is not harmful to consumers. It’s clearly a popular option – since January 2020 alone, consumer spending on BNPL in the UK has grown by 348%.
While BNPL currently represents a small proportion of total UK payments, it is growing rapidly. In online fashion retail, BNPL already accounts for 9% of all transactions and more broadly, almost one in 10 (9%) plan to sign up for a BNPL service such as Clearpay to manage their finances this Christmas1. It is an increasingly important element in the changing retail payments ecosystem.
Embedded economy: A win-win for retailers
BNPL provides a number of benefits to retailers. Offering customers flexible payment options that allow them to spread payments over a couple of paychecks helps merchants get new customers through the door.
In addition to being a payment platform, some BNPLs like Clearpay are a marketing channel that connects merchants with new audiences. We have seen this in action, as we refer around one million customers to sellers globally every day. Also, Clearpay found that 17% of Gen Z and Millennial customers would be prompted to buy a Christmas gift if they noticed the store offered a BNPL service1.
The right BNPL supplier also offers reduced fraud risk, increased purchase frequency, lower rates of return and a customer-first payment solution. This is especially useful for smaller sellers who don’t have the resources to compete with the security, price points or resources of competitors. For them, a BNPL company can be more than just a payment provider, it is a partner that helps a small business grow.
BNPL: A true first-mover advantage
SMB retail sales growth was over 2.5 times that of large retailers between 2019 and 2021. Small retailers have the chance to build momentum and gain an edge over the competition by embracing embedded finance and bringing payment options in line with larger retailers.
In this age of embedded finance, consumers now expect the same flexibility and experience whether they buy online or in-store, and retailers need to integrate the right payment and technology services to make the process seamless for consumers – wherever they shop.
BNPL helps retailers increase checkout conversion and the impact will increase with the continued rollout of BNPL in physical stores. In 2021, at Clearpay, we generated £739 million in incremental sales for UK merchants in 2021 and delivered £403 million in net financial benefits3 through improved revenue streams, delivering higher average order values and increased sales.
With public regulation of BNPL coming, the best outcome will protect consumers while allowing for continued innovation. By working together, industry and government have the opportunity to regulate the sector in a way that benefits businesses, payment providers and consumers alike.
For a technology that is less than a decade old, we have seen BNPL disrupt the traditional payments sector. New payment methods are creating real growth opportunities for UK retailers, while helping consumers manage their spending. This win-win for both the buyer and the shop owner will help them through the cost of living crisis and beyond.
About the author: Rich Bayer, UK & EU Country Manager at Clearpay (formerly known as Afterpay), the London-based BNPL fintech.
