American Express is joining a new frontier for the buy now pay later movement. Offering its card members the option to pay for flights in installments. Is this a well calculated investment or is American Express just joining the buy now pay later hype?
Buy now pay later has quickly earned its spot in the payments world and became the go-to payment method for millions of retail shoppers globally. What is quite remarkable however, is that BNPL is making its way into the high risk travel vertical.
AMEx is not the only player to spot a BNPL opportunity in the travel sector. Earlier this month, UK startup Fly Now Pay Later topped up its Series A funding round to a total of £45 million. Additionally, the 3 year old buy now pay later platform “Butter” which initially started in the retail sector but has made its way into the travel vertical, just secured £15.8 million through its latest investment round.
Buy Now Pay Later is undoubtedly convenient from a consumer’s perspective, and its clearly gaining traction, but it remains compelling to see a business combining the high risk flights with a high risk, high cost payment solution. So how does American Express balance the risk and reward in this regard?
One possible answer to the questions is that the main goal of offering installments is to increase conversion rates. As the pandemic halted tourism and travelling, and as employment rates have declined throughout 2020, businesses are seeking ways to help the industry to recover. Given the global economic recession, the ability to pay for a trip in installments can be seen as highly attractive to many consumers.
From the airline industry's perspective, offering BNPL makes sense.
Airlines will make a certain number of seats available in each booking class, and as the lower booking classes sell out, only higher fares will be available. BNPL can play an important role in increasing ticket sales early on, playing into the FOMO on low fares for travelers. The quicker this happens, the quicker the Algorithm-based pricing of airlines will adjust prices and maximize profits.
From our perspective, businesses can minimize the risk of offering BNPL solutions by requiring the consumer to pay the full price of the flight prior to travelling. However, it appears that American Express and Fly Now Pay Later do not require travellers to complete the payment prior to the actual flight. And while this is extremely attractive from a consumer’s perspective, we are curious about how the businesses mitigate the risks.
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