What: Macy’s, Gap and Neiman Marcus will let you buy now and pay later

Why is it important: retailers add BNPL options to attract younger shoppers

Traditional retail chains like Macy’s that derive much of their income from shoppers who pay with a store credit card are making room for a less-lucrative customer: buy now, pay later. Historically, BNPL had been used to spread out the cost of large purchases. But in the past year, a greater number of consumers have used it for items costing less than USD 500.

The emerging payment option is a modern take on layaway plans, allowing shoppers to pay for purchases over time. The difference is they get the goods upfront. Chains from Macy’s to Gap to Neiman Marcus have introduced BNPL options in recent months to attract younger shoppers, who are less likely to use credit cards.

Instead of earning a profit from customers who revolve a balance on their store cards, retailers pay fees to the financial-technology companies that offer BNPL plans, including Klarna Bank and Afterpay.

Macy’s Chief Executive Officer Jeff Gennette said in an interview that the risks are offset by the new, younger customers that BNPL attracts. He said 40% of shoppers using Klarna are new to Macy’s and 45% are under 40 years old. By contrast, slightly more than a quarter of Macy’s existing customers are under 40.

Afterpay Co-CEO Nick Molnar said the firm sent about 45 million customer referrals in December 2020 from its app to its retail partners, on par with traffic generated by social media platforms.

While still fairly new in the U.S., BNPL options are expected to grow to 4.5% of North American e-commerce payments by 2024 from 1.6% in 2020.

Macy’s, Gap, Neiman Marcus Will Let You Buy Now, Pay Later