Younger customers without established credit history are the most likely to use the service, CEO Jonathan Johnson said. Inc. customers are using buy-now-pay-later (BNPL) services to fund small purchases, according to CEO Jonathan Johnson.

Overstock ranks No. 33 on Digital Commerce 360’s ranking of the Top 1000 North American ecommerce retailers.

BNPL purchases can be for low amounts

BNPL purchases account for a small number of total sales, just 2% to 3%, Johnson told Digital Commerce 360. He said there’s been a “slight uptick” recently, though they’re still a small part of the business overall. Overstock uses Swedish payment service Klarna to facilitate those sales. 

Customers who do choose to use BNPL services are mostly buying less expensive items from Overstock’s catalog.

Average products purchased with Klarna range between $10 and $400, he said. This is a wide range that encompasses Overstock’s average order value of $215 in the fourth quarter of 2022, and notably includes items priced far lower than that AOV. For example, a small throw pillow priced at $25.19 can be purchased through four payments of $6.30 over six weeks.


Strategic reasons to offer BNPL

Johnson told Digital Commerce 360 that the main reason he sees to offer BNPL as a payment option is to maximize flexibility for consumers. Overstock’s BNPL users tend to be younger than its average customers, and may not have well-established credit yet.

For customers who can’t check out with a credit card, the goal is to make BNPL checkout as seamless as possible, though it’s not yet a “perfectly smooth process.” Using the service still takes “a few more clicks” than paying by credit card, he noted, because Klarna performs a “soft” credit check.  That means the check doesn’t hurt a customer’s credit score, and Klarna uses the check to decide how much credit to offer. Still, it’s important to him that “the payment option never becomes a reason to abandon the cart.” 

Overstock also has a lease-to-own option, but it serves a different purpose than BNPL, Johnson said. Customers typically use lease-to-own to finance much larger purchases over a 12-month lease period.

Johnson suspects BNPL use will continue growing among Overstock customers, “especially as we head into a recession,” he said.


Overstock and Klarna have history

Overstock first offered Klarna as a payment option in 2015, relatively early compared to other U.S. ecommerce retailers. This was years before Amazon officially partnered with competing BNPL servicer Affirm in 2021. 

In 2020, Overstock was among the 28.2% of Digital Commerce 360’s Top 1000 online retailers offering BNPL. In 2021, that was up to 45.7%.

In the eight years since adding Klarna, Overstock has stuck with the service. The best BNPL companies — which Johnson believes Klarna is among — make the purchase process nearly “frictionless” for consumers. Tractor Supply Co. (No. 102), Nike (No. 10), and Petco (No. 96) all offer Klarna to customers, too.

As of April 2023, 54% of Digital Commerce 360’s Top 1000 retailers offer some version of the service. Digital Commerce 360’s Top 1000 database ranks the largest North American online retailers by web sales.  18.4% offer PayPal credit, 14.8% use Affirm, 13.3% use Klarna, and 11.7% use AfterPay, with other services coming in behind.


The trend is bigger than Overstock

Overstock is an example of a larger ecommerce trend. More consumers turned to BNPL services in 2022 than in previous years, according to Adobe’s data. Online purchases made with BNPL were up 14% in 2022 over 2021, and revenue from BNPL purchases grew 27% year over year. Adobe did not share the total portion of online orders that use BNPL.

BNPL trends are shifting in 2023 so far, according to early data. In January and February 2023, BNPL use increased 10% year over year, while revenue decreased 19% over the same period. This shows that shoppers are using payment plans to fund lower-priced purchases, like Overstock reported.

Furniture sales and groceries were the two categories where consumers used BNPL more so far in 2023 than in 2022, Adobe found. BNPL furniture purchases were up 38% in the first two months of the year.

“The strong online growth of home furnishing purchasing is expected to bolster buy-now-pay-later adoption, given the higher ticket prices in this category,” Adobe Digital Insights lead analyst Vivek Pandya said in a press release.


This article was featured in the May 2023 Strategy Insights, “The perfect purchase experience.” Read other articles related to this topic by downloading for free here.

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