Consumers spent $211.7 billion online during the 2022 holiday season, growing by $7.16 billion despite high inflation and a looming recession. Customers are taking advantage of newer payment methods, such as Buy Now, Pay Later (BNPL), to manage their budgets. BNPL orders increased by 4% in 2022 compared to 2021. However, merchant revenues decreased by 2%, offset by a deeper analysis indicating that shoppers mostly used BNPL for smaller shopping carts.(1) "The BNPL payment option and some enhanced consumer experiences resulted in a solid holiday spending season despite the anticipated economic downturn due to inflation," observes Monica Eaton, founder of Chargebacks911 and noted content expert on consumer behavior.

While credit cards have a higher barrier to entry, BNPL is less dependent on a consumer's past credit history. "On the merchant side, offering BNPL payments can help boost conversions and attract and keep customers. This is true for higher ticket items such as jewelry and apparel; however, it may also lead to higher incidences of non-payment, the downside of BNPL," adds Eaton.

Why is spending still happening despite inflation? More affordable payment mechanisms are being introduced; the trend has shifted from high-interest credit cards to cost-saving options like BNPL. Research on consumer behavior highlights that the BNPL strategy is only being leveraged by a narrow demographic. However, with inflation and more online shopping, the demographics are expanding. The benefits of BNPL include lower payments, no additional interest, and more protection in handling transaction dispute rights since the purchase is spread out through installments. Eaton observed that during the most recent holiday season, merchants reaped the benefits of BNPL, according to findings from the recent 2022 Chargeback Field Report published by Chargebacks911.(2)

However, one of the primary financial risks of BNPL for consumers is they tend to spend significantly more than they usually would. Nearly 70% of customers who have used BNPL admit to overspending when using the service.(3)

Paying for Returns

One report found 25% of consumers were willing to pay for a product return, the trade-off being an increasing demand for at-home pickup and third-party drop-off for returns.(4) Another survey found the percentage to be double that, at 51%.(5)

Eaton's experience with merchants over the years has shown that returns decrease the potential for some chargebacks when the return procedure is made easier and more convenient. The consumer has an 'out' that doesn't involve disputing a purchase. The same consumer behavior has demanded faster checkout, keeping credit cards on file, overnight shipping, and other customer conveniences driving many eCommerce trends.

Save Now, Buy Later

Fintech is adopting another business model called Save Now, Buy Later (SNBL) as another alternative to credit cards. SNBL reduces online shopping cart abandonment by incentivizing the customer by offering an embedded no-fee digital savings account to save the necessary amount of money for their purchase as well as cash rewards to keep the customer engaged.(6)

"Both BNPL and SNBL help improve the online shopping experience for consumers, keeping the business stream moving for merchants," points out Eaton, cautioning, "Merchants and consumers need to monitor a potential increase in late and returned payment fees due to higher ticket sizes to determine if it will have an effect on returns."

Pinpointing the impact of consumer behavior on chargeback management, remediation, and dispute resolution is vital to a business's sustainable success. "Success doesn't happen by chance. Chargebacks911 examined the data and worked with merchants to develop innovative technologies that leverage emerging consumer trends," explains Eaton.

BNPL and SNBL can be effective for both the merchant and consumer as long as the processes and credit rules are clearly communicated by the merchant and adhered to by the customer. Eaton encourages merchants to stay current on all trends regarding consumer expectations, using actionable insights, gleaned internally and externally.

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References: 

(1) Edwards, Roy. "Adobe Releases Holiday Shopping Season Report with Record $211.7 billion spend for eCommerce", Enterprise Times, 13 January 2023, enterprisetimes.co.uk/2023/01/13/adobe-releases-holiday-shopping-season-report-with-record-211-7bn-spend-for-ecommerce/.

(2) Staff Writer. "2022 Chargeback Field Report", Chargebacks911, 2022, chargebacks911.com/chargeback-field-report/.

(3) Pedigo, Jack. "Understanding the Risks of Buy Now, Pay Later Apps", CNBC, 13 September 2022, cnbc.com/2022/09/13/understanding-the-risks-of-buy-now-pay-later-apps.html.

(4) Staff Writer. "Consumers Willing to Pay Item Return Cost for Convenience Factor", Retail Customer Experience, 1 November 2022, retailcustomerexperience.com/news/consumers-willing-to-pay-item-return-cost-for-convenience-factor/#:~:text=A%20good%20number%2C%2025%25%2C,it%20comes%20to%20product%20returns.

(5) Meldner, Richard. "Are Online Shoppers Willing to Pay for Returns? A New Survey May Surprise You", eSeller365, 13 January 2023, eseller365.com/are-online-shoppers-willing-to-pay-for-returns/.

(6) Staff Writer. "Is SNBL More Sustainable Than BNPL?", FinExtra, 16 June 2022, finextra.com/blogposting/22453/is-snbl-more-sustainable-than-bnpl.

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