What every marketer needs to learn from the meteoric rise of ‘buy now, pay later’
By Dan Monheit, originally shared on Mi3 9.3.21
Behavioural economics biases propelled Australia’s ‘buy now pay later’ industry from start-up to mass enterprise in six years. Afterpay, Zip, Humm, Openpay and Laybuy are all flying. Want to tap that rocket fuel? Here are three simple shortcuts.
What you need to know:
The buy now, pay later category has successfully tapped core behavioural biases to unlock growth.
Temporal discounting, defaults and the ‘mere exposure effect’ are all in abundant evidence.
They should be on any growth-seeking marketer’s radar.
My Takeout:
Pay attention
The meteoric rise of Australia’s buy now, pay later (BNPL) sector has given Australia’s fintech/start-up culture something incredibly inspiring to cheer about. The reverse layby model took off like a firecracker, rapidly transforming the Australian credit landscape before capturing the world’s attention. Afterpay now has more than 13 million active users worldwide, and the company’s global sales were up 106 per cent to $9.8 billion for the six months ended December 31. At the same time, Zip has grown to 5.7 million customers worldwide, and sales are growing 100 per cent plus year on year.
The entire sector is booming, with Humm Group, Openpay, Laybuy (NZ), and IOU all making significant gains in the market. The BNPL model has been especially popular with younger, debt-averse Generation Z and Millennials, who have chosen to step away from credit cards and instead pay back purchases in instalments over time, without incurring interest, if they’re timely with their payments.
While A-grade execution, technical brilliance and ‘once in a generation’ timing have all played a role, the category also appears to have directly tapped into core behavioural biases, and that’s what should be on marketers’ radar.
The power of now
It seems obvious; when given a choice, we’d rather have our purchases now than later. From an evolutionary perspective, it also makes sense to prioritise today, given how uncertain ‘tomorrow’ was for the vast majority of human history.
Baby Boomers and Gen Xers will be familiar with the unmatched, delayed gratification that came with going into a store, making your last layby payment, then finally having your long-desired item in hand. As thrilling as that was, layby never really stood a chance in the face of BNPL and the generational zeitgeist it captured.
Our unshakable ‘see now, have now’ desire directly ties to the behavioural bias known as Temporal Discounting, which refers to our tendency to reduce the value of something the further it is into the future, whilst overvaluing things in the here and now.
Temporal Discounting is why we choose a bottle of wine over a six-pack, sneakers over saving and ‘one more episode’ over an extra hour of sleep. We’ll deal with tomorrow once it gets here, right?
Whilst BNPL services didn’t invent our desire for immediate gratification, they helped us indulge it more quickly and seemingly more efficiently than the alternatives.
For brands with products and services that meet short term needs, the takeaway here is to go pedal to the metal on instant gratification, confident in the knowledge that we’re hardwired to be highly receptive to these sorts of benefits.
For those marketers with offerings that satisfy longer-term needs, it pays to look for (or create) short term hooks, goals or benefits that help scratch the itch we feel today. Progress shots at the gym and the addition of mint to toothpaste are both classic cases in point.
The power of defaults
‘Defaults’ are one of the most effective yet overlooked tools marketers have in their arsenal, and BNPL services have used them brilliantly to transform people’s relationship with credit.
At its simplest, a ‘default’ is the preset selection or course of action we’re offered when making a choice. Burgers that automatically come with fries and a drink, gym memberships that roll over every month, as well as the standard ‘wake up’ ringtone your phone plays in the morning are all examples of defaults.
Of course, we’re free to carefully weigh up all of the alternatives and make a better selection if we choose to, but in reality, we usually don’t. Defaults are so powerful because we’re busy, and our brains are lazy. We make tens of thousands of decisions each day. If we stopped to consider each one, we’d never make it past breakfast.
When we consider the default relationship between a person and a credit card, it typically involves making a bunch of purchases on credit, then paying off a proportion — often the minimum amount — at the end of each cycle. As a result, the debt builds over time, so consumers are paying off purchases they brought years previously, as well as the interest that goes with it.
Of course, we’re free to ignore the ‘minimum payment’ figure on our bills and conscientiously clear our debt at the end of each month, but this requires us to actively change the default, which is something we struggle to do. The easiest thing to do is let that credit card debt grow.
BNPL services foster a completely different relationship between customers and credit. The default setting is that once a purchase is made, the debt is cleared in a relatively short period, usually with a number of fixed, predetermined payments.
Again, customers are free to change the payment schedule if they want to, but a natural bias towards default options means they rarely do.
Whether we’re selling signage, supplements or software, marketers can leverage the power of defaults by including suggested or recommended options for key decisions that customers need to make. Reorder your last purchase? Yes, send me updates! This belt with that bag. Mineral water to start? You get the idea.
The power of turning up
BNPL’s tearaway success demonstrates the importance of just turning up. Without a doubt, a 2018 tweet from Kim Kardashian West talking up Afterpay set the rocketship in motion. An endorsement sent out to 180 million followers across Instagram and Twitter has the power to do that.
But in truth, no single ad, act or celebrity tweet — not even from a Kardashian — can sustain momentum for years on end.
As marketers and agency folk, we’re all guilty of expecting far too much from isolated initiatives while expecting far too little from consistently, methodically, pragmatically, and often boringly, turning up over and over again.
In Behaviour Science terms, this is called the Mere Exposure Effect, which describes our tendency to prefer things merely because they’re familiar.
As BNPL providers scaled their customer bases, they scaled the retailers and number of outlets that would accept their payments along with it. Not only did this create a natural flywheel (more stores accepting more payments from more customers), it turbocharged the amount of exposure that customers had to the leading brands.
In the early 2010s, retailers the world over enthusiastically slapped ‘find us on Facebook’ stickers across their front windows and countertops, in the most incredible display of voluntary cobranding the world had ever seen. Today, Afterpay’s Bondi Mint and Zip’s colourful Z occupy this prized retail real estate across millions of stores worldwide and the web.
For any brand, the benefits of repeated exposure, which include perceptions of safety, familiarity and preference, can be accelerated with the effective use of brand codes. The leading BNPL players are painfully consistent with their use of colours, shapes and words, ensuring consumers instantly clock whose sticker, poster or TVC they’re seeing.
