Set the stage: It’s the holiday season in the post-war era. The pressure to celebrate extravagantly is high, driven by the desire to keep up with the Joneses. However, financial realities loom large, with tight family budgets and bills to pay. The solution of the time? Layaway.
What was Layaway?
Layaway was a strategic retail practice that accommodated consumers with limited disposable income. This financial service allowed customers to reserve merchandise by making incremental payments, typically 6-12 weeks, before taking possession of the item. Unlike credit-based alternatives, layaway plans did not charge interest, which provided an accessible purchasing mechanism for budget-conscious shoppers.
Credit cards replaced layaway in the mid-1980s, offering consumers immediate product possession with potential interest-free periods and attractive rewards. By providing manageable credit lines with perks like cashback and points, credit cards made layaway obsolete, enabling middle-class families to strategically finance purchases, particularly during holiday seasons.
Disrupting a Disruption
The digital payment landscape evolved rapidly from credit cards to digital wallets like AliPay, GCash and Mobile Wallets and innovative financing models. By 2012, Affirm disrupted traditional payment methods, reintroducing interest-free installment plans reminiscent of layaway. Offering 3 – 6-month payment terms, Affirm capitalized on consumers' desire for flexible, transparent financial solutions, effectively reimagining a decades-old retail strategy for the digital age.
Affirm, having sparked a revolution, was quickly joined by AfterPay and Klarna. PayPal, the original payment innovator, swiftly launched its own solution. Initially dismissed by critics questioning financing a $125 purchase, the model found its breakthrough in 2020. As the pandemic disrupted economies, closing stores and eliminating jobs, Buy Now, Pay Later (BNPL) transformed from a novelty to a financial lifeline, becoming a household term overnight.
What's Old is New Again - The BNPL Financial Renaissance
By combining layaway's affordability model and target market with modern FinTech, BNPL redefined payment flexibility for the 21st century consumer using 20th century principles. BNPL is “layaway” for the Digital First Era. As adoption continues to scale, retailers of all sizes are exploring how to integrate BNPL into their business strategies to enhance customer experience for a positive effect on sales. As BNPL continues to capture market share, it shows an incredible resonance with today’s shoppers, who value both convenience and financial control.
- In 2023, nearly 1 in 5 consumers used BNPL for purchases averaging $135
- Same year, 88M customers used BNPL increasing from 50M in 2021, with projections to surpass 100M by 2026
- In 2024, 1 in 3 seasonal shoppers and 2 in 3 parents are expected to use BNPL to create memorable holidays for their families
What's Next for BNPL?
At DefinedLogic, we’re here to help businesses explore new opportunities in the market, like Buy Now Pay Later. From Composable Architecture to Customer Experience and the creation of Go-to-Market strategies, DefinedLogic can help identify if trends like BNPL meet your customer’s ever-changing expectations.
Let’s connect to share our forward-looking point-of-view on BNPL and how it could fit your commerce needs.
Schedule a 30-minute call with me today!