The buy now, pay later (BNPL) space is becoming saturated. Consumers have an abundance of choices, and many are opening plans with more than one provider at a time. Because there’s a low barrier to entry and minimal underwriting, consumers will play around and test out several different services to find the one that best meets their needs. To be competitive, it’s no longer enough just to have a BNPL offering – you must provide the features that consumers are demanding.

The Strawhecker Group, an analytics and consulting firm that serves the payments ecosystem, has done extensive research into BNPL technology and identified the features that serve as powerful drivers of consumer choice. This article will dive into the findings about what user features are critical to a successful BNPL solution.

Growth, but no loyalty in BNPL

Why are we seeing such growth in the BNPL space? There are a number of economic and social drivers including the growth of e-commerce, consumers seeking a financial cushion during COVID-19, the overall rise in popularity of alternative payment methods and younger consumers’ desire to avoid credit card debt or lack of credit history needed to pursue traditional financing.

Younger consumers, in particular, are treating BNPL like an alternative to credit and looking for basic features that offer an advantage over credit cards like no interest and no late fees. Some consumers are “super users” that tap into BNPL frequently even for small or mid-size purchases. These users may have 10-15 open plans at any given time, while the majority will have one to three open plans for large purchases.

Despite acceptance by consumers of all generations, the fact that most users are willing to try multiple options at once indicates a potential lack of loyalty to a specific provider, which means you’ll have a hard time retaining customers if you’re not delivering the capabilities they expect.

Which BNPL features do consumers actually want?

In a TSG survey of more than 500 BNPL users, the features rated as an important element of buy now, pay later plans were:

• No interest (82%)
• Easy return policy/refund process (80%)
• No late fees (76%)
• Short application process (75%)
• An app for download and purchase (65%)
• No credit check (63%)
• Rewards program (62%)
• Cash back opportunities (61%)
• An option to skip a payment if needed (60%)
• Variety of plan structures (59%)
• Online and in-store use (58%)
• Discount offers at retailers (58%)

No interest came in as the most popular. This is a telling finding as some financial institutions are developing their own BNPL offerings that include interest. They may need to review their strategy more closely and see to what extent their customers are willing to put up with interest when there are a number of interest-free options on the market.

An easy return policy is a close second. Thanks to major players like Amazon, today’s consumers expect return processes to be fast, simple and seamless. If shoppers purchase an item using an installment plan and decide to return it the next day, they want to send it back and get a refund with no hassle. We noticed this is a significant area for consumer complaints as BNPL users have had to wait months to receive a refund or call their provider multiple times to resolve return issues. A smooth return process is a solid differentiator and consumers will likely stick with a provider that has this experience nailed down.

Overall, the industry already has a strong pulse on the third feature: no late fees. Consumers don’t like the thought of a fee hanging over them, and BNPL providers are tapping into that knowledge by highlighting “zero late fees” in their marketing. Similarly, a short application process is the norm with most BNPL providers asking for a limited amount of information such as name, phone number and address, then using algorithms to determine suitability. This is where seamlessness is key. Consumers don’t want to waste time with lengthy underwriting; they want access to funds as quickly as possible.

After these top four features, consumer demand starts to wane. Features like rewards programs and cash back opportunities are not necessarily incentivizing customers in the selection process, but they can serve as long-term loyalty drivers for consumers who already have a favorite BNPL service. An app is especially popular with younger consumers who favor mobile purchases. While the majority of BNPL plans have four installments to keep underwriting requirements to a minimum, some providers offer a variety of plan structures such as financing over six months or in 18 installments.

BNPL users are searching for their perfect match. Deliver the features they’re asking for, and it could be you.