“Buy Now, Pay Later” (BNPL) Is The Latest Luxury Trend

Image: Gucci

Purchasing a luxury item is a watershed moment in many people’s careers. This is especially true for the new generation of spenders who have just recently begun their professions, and purchasing that major purchase represents a move from adolescence to maturity. Many firms cannot afford to disregard this rising group’s proclivity for luxury consumption. They will be the core that will assist bring in income in the future, and it does not harm to develop a connection with them now.

While this set of spenders in their 20s and 30s has a strong desire for luxury, they may not have the financial wherewithal to complete the whole purchase. As a result, there is a chasm between the want to acquire and the means to pay. To bridge this gap, businesses are formed, and a new phenomena known as “Buy Now, Pay Later” (BNPL) is introduced into society.

Image: Gucci

BNPL is a relatively new payment option that has gained traction in recent years. The principle is comparable to typical credit card payments, but what distinguishes BNPL is the absence of a necessity to verify credit ratings. This is a tremendous help to Generation Z and millennials who may not satisfy the conditions for a regular credit card but still want to buy that piece of luxury goods. Payment companies like as Klarna, Afterpay, and Affirm are currently among the most popular services sought after by both brands and customers.

BNPL is the ideal choice for premium businesses looking to enter the younger market. Using the BNPL plan, these customers may stretch the cost of their purchase across multiple payments, which can vary from three to six months depending on the provider. This enables younger consumers with less discretionary means to finance their purchases in installments and gain greater financial control.

“Splitting a high-priced purchase into a few installments allows customers to acquire the things they want to own without putting merchants under pressure to price promotionally,” says Marie Driscoll, managing director of luxury and fashion at Coresight Research in New York. “BNPL promotes brand equity, whereas promotional pricing detracts from it.”

There are consequences if payments are not made on time, just like any other payment plan. While BNPL providers do not do a “hard check” of a person’s credit history, they do undertake a “soft search” to screen out borrowers with a poor credit history. If a payment due is missed or postponed, it can have a negative impact on a person’s credit score. This is an important factor for young individuals just starting out.

According to a McKinsey analysis, fintech businesses such as Klarna and Afterpay are expected to generate sales ranging from $4 to $6 billion by next year, with much of this increase ascribed to younger, risk-averse clients.

Youths all across the world are growing increasingly eager to part with their money as their purchasing power grows. While mature economies in the West are witnessing younger spenders, the majority of customers are coming from the East, specifically Asia-Pacific and Southeast Asia. Its young people are competent at using fintech services, and when combined with increased income due to healthy economic development and low unemployment, it is the ideal recipe for success for both service providers and luxury goods.

Image: Bvlgari

Recognizing the importance of the young market, BNPL providers have collaborated with a slew of luxury labels, including Gucci, Balenciaga, Bvlgari, Givenchy, Bottega Veneta, and others. Luxury businesses such as Saks Fifth Avenue and Neiman Marcus have also joined the party. The goal for these merchants is to broaden their consumer base by recruiting individuals who could not previously afford luxury products, therefore it is a win-win situation.

But, as luxury becomes more affordable, does it lose its attractiveness in the long run? Yes, its allure is diminished slightly if luxury is measured in terms of monetary worth. While price values are commonly used to establish the status of a luxury product, they are not the sole criteria. It is a combination of variables such as the meticulous workmanship used to create the goods, the lengthy history associated with the brand, and the full experience or journey involved in getting that particular object of interest.

Image: Bottega Veneta

Despite the fact that the majority of BNPL users are Gen-Z and millennials, there is a subset of spenders who are older and financially capable of paying in full. However, people continue to utilize these services because they are more convenient. As a result, luxury businesses stand to broaden their consumer base even more to accommodate this new pool of spenders.

In a perfect world, customers would all be able to pay in full, but the fact is that not everyone can afford a big quantity of money all at once. A luxury item may only be considered luxurious if it is affordable. Can a luxury commodity truly be labeled luxury if one does not have the resources to obtain it?