When you think of customer financing, it’s likely that personal loans or credit cards come to mind. But you may not think about installment lending, which has a long history in the United States. It’s also become a popular form of alternative financing today that’s helping many businesses win customers and increase revenues.

A customer financing option comes of age

Long before credit cards came on the scene, Americans living in the Civil War era were able to buy goods and pay for them over time in an early form of installment lending. Many manufacturers discovered that more people “could afford to buy sewing machines and horse buggies if they bought now and paid later,” according to the National Installment Lending Association.

This early form of financing saw a big variation in the 1930s with layaway plans. Retailers would extend credit by allowing shoppers to make payments on a set schedule before they took ownership of the items they paid for. This type of customer financing was very popular for decades until credit card usage grew more widespread in the 1980s and beyond.

The modern twist on installment lending is known as buy now, pay later (BNPL). In 2012, this customer financing method took hold in the United States with the founding of Affirm. (This infographic details how our company and its financial products have developed in a decade.)

BNPL: The smart financing option today

The flexibility and ease of BNPL appeal to many shoppers as an alternate payment method to credit cards. Here’s a quick summary of the transaction process:

• Once your business has partnered with a provider to offer a BNPL option, shoppers often discover it online at checkout. 

• In many cases, they see they can choose to split the total cost into 4 interest-free payments to be made every 2 weeks. 

• Shoppers provide a few quick pieces of digital information and learn in seconds if they’re approved for the financing. 

• Then they agree to the payment schedule and click “buy,” after which you receive full payment, minus the agreed-on fee for the BNPL provider. (See this post for more details on how buy now, pay later works.)

The popularity of this pay-over-time option is surging among consumers. Last year more than 1 in 5 shoppers used a BNPL service for holiday shopping, according to an eMarketer estimate. Nearly 75% of BNPL users are millennials or Gen Z, and digital usage by shoppers in all major demographics is expected to rise each year through 2025.

The upsides of offering customer financing

Offering financing to your customers can be very simple to implement, as your BNPL provider takes care of the loan processing and collection of payments. You also gain an advantage by giving shoppers what they want: more choice in how they pay for their purchases.

In general, businesses that offer BNPL options to customers see up to 30% increase in conversion, in addition to other benefits. Merchants that partner with Affirm to offer financing, for example, see up to 85% lift in average order value and a 20% repeat purchase rate.

Giving your customers this payment flexibility can also enhance their satisfaction and build loyalty, as one Audi service center director discovered. 

“When people see what we’ve been able to do for their car and then offer them a flexible way to pay, they think we’re heroes!” said Luan Nuriu of Audi Coral Springs.

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