How “Buy Now, Pay Later” Works For Subscription Services


Consumer spending habits have shifted dramatically during the past few years, from a number of reasons including the COVID-19 pandemic, inflation, and the impacts of government stimulus programs. As behaviors change in the face of a probable recession, both businesses and consumers are reexamining the best uses of their money, and how to navigate costs in ways that still allow access to products and services of all industries.

The introduction and rapid ascension of “Buy Now, Pay Later” programs, or “BNPL,” has also been an exciting development. BNPL entices shoppers by offering the product upfront, requiring a handful of smaller payments and letting buyers circumvent credit card payments to pay down debt on individual products more directly. A modern take on layaway purchasing or rent-to-own, BNPL is a form of short-term financing that lets customers pay for products (typically higher-end) over a series of low- to (most often) no-interest installments.

What’s most interesting about the BNPL boom is not how it opens up a new form of payment, but rather how its structure reflects a changing consumer attitude about spending and ownership. Similar to the boom of consumer subscription services over the past five years (which itself reflected the SaaS boom of the early 2010s), BNPL’s moment in the spotlight shows that consumers are becoming more willing to offer repeated or even perpetual payments to use products or services that would otherwise be too costly up-front.

To fully understand this correlation and what it means for subscription service apps long-term, let’s take a look at what triggered this BNPL rush and how this exciting new opportunity will likely evolve in the coming months.

BNPL in the News

BNPL’s rise over the past year and a half looked like a full-on surge as recently as a few months ago. An influx of options from existing and new companies, including Klarna, Affirm, Afterpay, and Paypal, displayed an optimism among numerous online retailers to put this payment strategy into effect quickly.

The initial growth in BNPL comes out of spending habit changes from the COVID-19 pandemic, as more shoppers moved to ecommerce and were bolstered by government stimulus checks. But in a cultural context, BNPL is a major hit particularly with younger generations because it allows them access to popular higher-end products without having to make a one-time, hefty payment. This new payment strategy frees up these demographics to shop at a luxury price tier as opposed to where their budget might constrain them to lower-quality or discounted items.

More and more merchants embraced these methodologies in hopes of cashing in on the trend, with BNPL providers themselves making huge waves as recently as last year. One of the largest platforms, Afterpay, was bought in the middle of 2021 for a whopping $21 billion by payment giant Square, while Klarna saw its own massive $46 billion valuation. At the same time, BNPL started attracting government attention to protect consumer interests, and just as quickly, merchants are preparing for regulatory changes that would push them to provide more consumer education and spending protections.

Today, BNPL is still a hot-button topic in the payments sphere, but the outlook isn’t as rosey. While the idea was to give consumers more access to expensive goods, inflation is driving the need for BNPL to purchase everyday goods — a sign that people are taking on debt in areas that become less sustainable and healthy over time. Meanwhile, those same massive valuations dipped as markets respond to weakening consumer confidence, exemplified by Klarna seeing that once jaw-dropping valuation crash back down to earth from $46 billion to just $6.5 billion.

BNPL Meets Subscriptions

During the past few years, subscription app revenue surged as more and more customers rethought how they spent their money and consumed services, content, and products. Changes in daily life, a push toward ecommerce and mobile spending, and a shift in how consumers treated ownership of products or services were elemental to this rise. The rise of BNPL mirrors that trajectory, showing the long-term potential of both revenue models — inflation notwithstanding.

The factors behind both subscription and BNPL growth are more similar than one might think. At their core, they’re allowing consumers to have more control over their spending, more transparency in costs, and more access to mobile and digital transactions. As the average consumer becomes less concerned with traditional one-and-done payments and outright ownership of products and services, they also become more comfortable with smaller, regular payments that are easier for them to make. It’s a core reason why BNPL companies are keen to enter the subscription payment sphere very soon for common services like fitness memberships and streaming.

The key difference here, and one where subscriptions have an advantage over BNPL, is in discounting services through annualized versus monthly sign-ups. Mobile subscription apps are guided by their retention metrics, ensuring they can collect regular revenues over time for a sustainable, scalable business. Annualized discounts bolster retention by encouraging a longer attachment to a brand, whereas BNPL is inherently capped when the payment is completed. Since BNPL is used in individual product purchases, it relies almost solely on driving new sales from otherwise budget-conscious shoppers, and not more forward-thinking metrics like retention.

That said, if developers began to incorporate BNPL into their payment methods more, and marketplaces like the App Store further embraced these tools, apps and BNPL providers could benefit mutually. Price-conscious subscribers could break up annual payments over smaller installments on a monthly or quarterly basis rather than a larger one-off purchase. In one fell swoop, this would unlock a new avenue of user acquisition for subscription services while also providing a way for them to tap into more revenue, much faster, from larger annualized payments.

The BNPL boom may be shakier than initial optimistic projections thought, but the opportunity it’s provided both businesses and customers is promising. As options grow, early platforms like Afterpay are already acting on the potential of bringing BNPL to subscription services, and in turn, mobile app developers should explore the method as a way to attract younger customers to annual subscriptions for more actionable, immediate revenue. Over time, BNPL has the potential to lead to long-term retention, driving the metrics that can help brands grow, secure essential funding, and keep their businesses at the cutting edge of the marketplace.

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