The buy now, pay later (BNPL) strategy is picking up pace. According to a Straits Times article last year, BNPL transactions amounted to around SG$440 million, said Minister of State for Trade and Industry Alvin Tan. But this was less than 0.5% of the SG$103 billion in credit and debit card payments.
While common in the retail and online space, recently a number of hotels around the region have also begun their adoption of the buy now pay later (BNPL) offerings. For instance, Shangri-La Hotels and Resorts tied up with fintech solutions company Pace Enterprise earlier this month to introduce BNPL at participating hotels in Malaysia . Meanwhile, Atome also inked a deal with IHG Hotels & Resorts to offer BNPL at three of its hotels in Singapore.
According to a study by Research and Markets, BNPL payment industry in the region is expected to grow by 61.5% on annual basis to reach about US$ 133.7 billion in 2022. BNPL payment adoption is also expected to grow steadily, recording a compound annual growth rate of 33.3% from 2022-2028. The BNPL Gross Merchandise Value is also expected to reach about US$749.22 million by 2028.
With border restrictions easing and more people starting to travel again, the tourism industry which is hungry to get back on track for recovery, industry professionals MARKERTING-INTERACTIVE spoke to said that BNPL will play a key role in their strategy.
Speaking to MARKETING-INTERACTIVE under anonymity, a marketer from a luxury hotel brand shared that the BNPL strategy allows for an alternative means of financing for people who do not wish to use their credit cards. Hotels will also regard BNPL as a tactic to capture the revenge travel crowd. “In markets that are starting to recover, we observe a very different mix of travelers versus pre-COVID-19. Majority of them are leisure travelers, and they are in general younger,” he said.
He added that from observation, GenZs are the main target audience and users of BNPL, and they are also contributing to the recovery of hospitality.
Adding to the conversation, Jozie Lim, cluster director of marketing at IHG Hotels & Resorts said that adopting BNPL allows the company to reach out to the “new-age travellers” who are looking for a smarter and more rewarding way to pay - all while providing them with the opportunity for a longer stay.
A 2020 study on consumer spending data by Cardify found that younger demographics have proven to be fertile grounds for this new payment method as their increasing aversion to credit results in fewer credit cards in their pockets than previous generations. As a result, they are more receptive to BNPL, which offers instalment options in real-time during checkout. The study, which covers the US demographic, found that women make up over 70% of all BNPL transactions, likely because many of the BNPL providers have set their eyes on the "lucrative and female-dominated fashion and beauty verticals". Gen Zs and younger Millennials were also found to account for over 80% of all BNPL transactions.
However, BNPL can bring more to the table than travel-starved customers looking for a wallet-friendly solution. For instance, Lim said that customers who use Atome when booking at participating IHG hotels are rewarded with cashbacks – which is attractive for many youths. Another2020 study by payments company Dosh also reaffirmed the notion stating that in the US, 74% of Gen Z will spend more if they can instantly get 5% of their cash back. The service can also inspire loyalty as approximately 70% of Millennials and Gen Z say instant cashback makes them feel good not just about themselves, but also the store that gave them back the cashback.
Tapping on new insight
With BNPL solutions hotels can also tap on insights to create new offerings that cater to the younger, underpenetrated demographic, said Turochas Fuad, founder and CEO of Pace. Echoing the sentiments of the hoteliers, Fuad shared that adopting BNPL will primarily help hotels to reach out to new audience segments, namely the youth, who are looking to travel but may not have the budget to do so.
Currently, Pace also has multi-country payment solutions to help hotels expand their audience reach to regional customers across Asia, providing a unique benefit especially as travel re-opens and tourists look to plan their international travels. Quoting the World Travel & Tourism Council, Fuad shared that the tourism sector’s contribution to APAC’s GDP could see a YoY increase of 36.3% (US$515 billion) this year, ahead of the global average of 30.7%.
He said the strong uptake of BNPL payments amongst hotels demonstrate “the versatility and capabilities of BNPL payments to other industries”.
“We see this as an opportunity to play a role in supporting the tourism industry through alternative payment options, allowing more people to travel and pay in a sustainable and flexible manner,” Fuad added. However, brand and merchant partners must also think out of the box and beyond payment, shared Fuad. “A lack of vision to view BNPL beyond a payment method can limit businesses from fully optimising it. When leveraged properly, BNPL can be a powerful tool to provide actionable insights to help businesses to cater to their customers needs.”
For instance, with all the data at hand, BNPL solutions also present hotels with the option to tap on insights to create new offerings that cater to the younger, underpenetrated demographic.
Agreeing with Fuad, Trasy Lou, regional general manager at Atome, added that the BNPL option allows for a flexible range of payment solutions which make travel and hotel stays more affordable and accessible without putting budgets at risk.
Atome, which initially started up in December 2019, began growing in the market by focusing on fashion, beauty, and lifestyle verticals. However, seeing the demand for other verticals including F&B, premium fashion and beauty brands, and also travel and hospitality, it has since expanded its offering.
Speaking on Atome’s partnership with hoteliers, Lou said many well established hotel brands typically have a loyal base of customers who are of an older profile base. However, Atome’s audience is aged mostly between 25 to 40, enabling the hoteliers to tap onto a new segment through its marketing. Atome’s marketing ecosystem ensures its hotel partner deals are integrated into its app which drives traffic to their websites.
Dangers of buy now pay later
While the positioning of BNPL is no doubt attractive, and has become a hot favourite of young consumers replacing the standard bank credit card option, the risk of overspending remains a very real one. According to the study by Cardify, installment buying can push consumers to spend more than they can afford, and nearly 46% of shoppers in its study would spend less if BNPL wasn’t an option. Commenting on the pitfalls, Lou shared that generally hotel stays have a typically higher average basket size than traditional fashion, beauty, retail purchases, it is also where more customers are asking for a deferred payments to split their bills, so they can stay longer or experience different types of hotels/concepts.
“With that, goes without saying travellers will need to manage their budget well. For us that means checking their in-app payment schedules/reminders so as not to miss payments,” said Lou. “We also evaluate carefully their credit limits and payment history, to ensure they are using our service responsibly and sustainably.”
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