The possibility to postpone payment when shopping online has become common practice. This brings a wide range of benefits to the customers. Especially the younger generations are plentifully making use of this feature. If your target audience includes millennials or gen Z, you should not sleep on deferred payments. But, also older generations like to receive first, pay later.
Research by Klarna showed that 53% of men and 62% of women like to have the option of deferring payment when shopping online. One-fourth of respondents even stated that they only shop at merchants that provide this option. Deferred payments are especially popular when shopping for electronics, fashion, and interior products.
Consumers are going crazy for this payment method because it brings them flexibility, but also lowers the trust barrier. Typically they can choose between paying the whole amount within a set period of time after purchase or paying in installments. This way, even if they face unexpected costs, they can pay for their purchase with the next salary. For many shoppers, the main motivation is to see first if the retailer delivers, and then pay the full amount afterwards. Many consumers make use of deferred payments when ordering a bigger amount of clothes online, as they can comfortably try everything at home and decide what to keep and what to return before spending a cent. Unfortunately, this leads to higher returns and thus does not support sustainable e-commerce. On the other hand, by providing better product content, merchants can reduce returns of goods.
An obvious benefit for merchants is an increase in conversion rate, as deferred payments and especially payment in installments make their goods available also to customers that cannot afford to pay in one go or feel that the merchant is not (yet) trustworthy. Deferred payments are also proven to increase the average order value thanks to the option of paying in installments. Furthermore, customers are more likely to return to an online store that offers later payments. But, there is also a downside. If the deferred payment provider is charging high interest rates on deferred installments. This is something to watch, as it can bring some consumers into problems.
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