TROY, Mich.–New research from J.D. Power offers insights into how people are using buy now, pay later (BNPL) financing solutions and how it is affecting their financial health. Among the findings: while growing quickly, BNPL still comprises a small slice of consumer financing choices, and many consumers don’t understand how various forms of financing work.
J.D. Power said its Banking and Payments Intelligence team conducted a pulse survey to “evaluate user experiences with different services and asks how the growth of these services is affecting overall financial health.”
The company said it found that while credit and debit cards are still leading the way in overall utilization, BNPL, mobile wallet and person-to-person (P2P) payments are earning high customer satisfaction scores, particularly from younger customers.
“The research also finds that digital transactions are making it easier for young customers to overspend,” according to the company.
The Findings
Among the findings:
- In terms of overall utilization, debit and credit cards are still the most frequently used payment methods by a wide margin. Across all age groups, 32% of consumers have used a debit card in the past three months and 28% have used a credit card, J.D. Power stated. Mobile wallets, P2P apps and BNPL are used much less frequently. Just 2% of consumers used a mobile wallet and just 1% used a P2P app or BNPL during the three-month period.
- Overall customer satisfaction is highest for credit cards (4.4 on a 6-point scale) and BNPL. Satisfaction scores are higher for these digital alternatives among customers ages 18-44 than they are for those ages 45 and over.
Life Stages and Usage
According to J.D. Power, use cases and life stage appear to influence the decision to use one payment type over another.
The research found:
- The primary reason for using credit cards among 61% of customers ages 45 and older is to earn valuable rewards with purchases.
- Among customers younger than 45, just 36% are using their credit cards to earn rewards, while 25% are using credit cards to break up their payments over time.
- Debit cards were valued for their lack of interest charges and debt, and are also used more heavily by younger consumers for large recurring expenses, such as rent, car payments or insurance.
- BNPL users cite low payments, the ability to buy more expensive purchases, lack of interest charges and promotions and rewards as their primary motivators.
It’s Free, Isn’t It?
J.D. Power reported the survey found younger consumers tend to have higher levels of satisfaction with most payment types, but generally also have less understanding about payment methods and are making poorer financial decisions when using these solutions.
The survey found, for example, 38% of consumers ages 18-44 say they only partially understand the payment methods associated with these services and 5% say they do not understand them at all.
“As a result, more young customers tend to struggle with financial health. Just 41% say they pay off their credit card statements each month and 28% say they sometimes overdraw their checking accounts with their debit cards,” J.D. Power said. “Younger customers have also been the most enthusiastic adopters of BNPL services. They tend to have more accounts and are more likely to be paying off multiple purchases at once. However, many are also failing to take advantage of interest free options and instead paying beyond their budgets and not paying on time.”
Additional information can be found here.
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