Who Are the “Buy Now, Pay Later” Borrowers and What Do They Purchase?

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As the holiday shopping season kicks off with Amazon’s Prime Day, projections suggest that U.S. consumers will spend a record-breaking $18.5 billion using the buy now, pay later (BNPL) system in the final quarter of the year. According to Adobe Analytics, this marks a significant rise in BNPL adoption as more shoppers turn to flexible payment options for their holiday purchases.



The BNPL trend gained momentum during the COVID-19 pandemic when online shopping surged, leading to a $75 billion increase in e-commerce spending in 2023, up 14.3% compared to 2022, according to Adobe.



What is “Buy Now, Pay Later” (BNPL)?



BNPL services, offered by companies like Affirm and Klarna, allow consumers to spread their payments over time, often through installment plans. The most common option is the “pay-in-four” model, where the total purchase is divided into four equal payments. These services provide consumers with more purchasing power by allowing them to buy now and pay later, often without interest for short-term plans.



One of the key features of BNPL is that most providers do not report their loans to credit bureaus, making comprehensive data on defaults rare. However, according to the Financial Technology Association, which includes three BNPL lenders, the delinquency rate for these loans is under 2%, significantly lower than the nearly 9% default rate for credit cards.



Still, a Federal Reserve Bank of Boston report found that in 2023, 71% of BNPL users also had outstanding credit card debt, highlighting concerns about potential over-leveraging.



BNPL Providers and Payment Behavior



Afterpay, a BNPL service owned by Block, reported that 96% of its users made their payments on time in the last quarter of 2023. Similarly, Klarna stated that 96% of its pay-in-four users were either early or on time with their payments.



On the other hand, Affirm disclosed that 2.4% of its loans for the quarter ending September 30, 2024, were more than 30 days overdue. These figures illustrate the overall reliability of BNPL users, despite concerns over debt management.



Key BNPL Consumer Trends: Insights and Data



Here are five key takeaways highlighting BNPL usage trends:



1. BNPL’s Growing Share of Online Spending



From January to September 2024, consumers spent over $731.5 billion online, with $57.6 billion attributed to BNPL purchases, according to Adobe Analytics. This marks a 10.3% increase in online spending compared to the same period in 2023. The forecasted $18.5 billion in BNPL purchases for Q4 2024 would represent an 11.4% increase year-over-year.



2. High Rates of On-Time Payments



According to the Federal Reserve Bank of Philadelphia, the majority of BNPL users pay their installments on time. Fewer buyers were late on their payments between 2022 and 2023, indicating improved payment discipline. However, the Philadelphia Fed noted it’s unclear whether this shift is due to better borrower selection or a changing consumer demographic.



3. BNPL and Credit Scores



In 2022, the Consumer Financial Protection Bureau (CFPB) reported that most BNPL users had credit scores in the subprime (580-619) or near-prime (620-659) ranges. Since many BNPL lenders don’t share consumer data with credit bureaus, there’s growing concern that BNPL-related debts are largely invisible to regulators, other lenders, and even BNPL companies themselves.



To address this, the CFPB introduced new regulations in 2024 requiring BNPL lenders to handle consumer disputes, process returns, and provide periodic billing statements. Despite these efforts, lenders still aren’t required to assess a borrower’s ability to repay loans.



4. Average Monthly Payments



A study from The Motley Fool found that 58% of BNPL users had an average monthly payment of $100 or less in 2024, making BNPL an attractive option for small purchases. In contrast, the average monthly credit card payment was $202, according to Experian. Only 2% of BNPL users reported a monthly payment exceeding $1,000.



5. Generational Differences in BNPL Purchases



According to data from PYMNTS, younger generations such as Generation Z, millennials, and Generation X primarily used BNPL for clothing in 2023. Meanwhile, baby boomers were more likely to use BNPL for larger purchases, such as furniture. Another noteworthy trend is the rise in BNPL use for everyday essentials like groceries, gas, and utilities. The CFPB found that BNPL usage for these items jumped by 434% in 2022 compared to 2020, as consumers sought ways to manage rising costs.


Conclusion


The buy now, pay later phenomenon is reshaping consumer spending habits, offering more flexibility for buyers across generations. While BNPL services provide a convenient alternative to credit cards, concerns about over-indebtedness and the lack of credit reporting remain. As BNPL continues to grow, both consumers and regulators are likely to pay closer attention to its long-term implications on financial health and debt management.


By understanding the key BNPL trends and making informed decisions, consumers can take advantage of the benefits without falling into financial pitfalls.


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