COSTA MESA, Calif.– Buy now, pay later (BNPL) financing is attracting consumers from across the financial health spectrum, and most consumers are drawn to it for the same primary reason—they like the repayment terms, according to a new survey from J.D. Power.
With 28% of U.S. consumers now saying they've used BNPL financing at least once in the previous 90 days, J.D. Power said it sought to find out who, exactly, are these BNPL customers and why are they choosing this form of payment over countless other options?
“While many reports have suggested that BNPL has been most attractive to financially vulnerable consumers who are already overextended on their credit cards, the real BNPL customer profile is decidedly more nuanced,” J.D. Power said in releasing the findings from the new J.D. Power 2023 POS Choice Satisfaction Study.
Repayment is Top of Mind
Noting that both credit cards and BNPL allow consumers to make purchases they may not be able to pay for immediately, J.D. Power said it found differences in consumer perceptions about repayment terms help explain why BNPL is attaining prominence at the checkout.
Some of the Findings
Among the findings:
- 33% of consumers indicate a primary driver for using BNPL is "repayment terms are reasonable," more than any other factor and significantly more than the 6% of consumers who say it's a primary reason they use credit cards.
- 25%) of consumers indicate they use BNPL because it is helpful for budgeting, while only 8% say the same about credit cards.
What One Person Said
J.D. Power quoted one survey respondent as stating, "[My BNPL plan] is easy to use. There are no complicated terms. It does exactly what it says it will. It's split into four payments...and that's that. No tricks, gimmicks, or little details lurking."
BNPL Isn’t for Everyone
Acknowledging that BNPL has some people of going into additional debt, J.D. Power said noted 55% of U.S. consumers are currently at risk of being unable to cover their basic financial needs, according to its August U.S. Polaris Pulse report.
One-Third at Risk
According to the J.D. Power data, 32% of consumers at risk of being unable to cover their basic financial needs used BNPL in the previous 90 days, which is higher than the 28% usage rate among the total population.
“However, these consumers are not alone in using BNPL at the POS,” J.D. Power stated. “Nearly one-fourth (23%) of consumers who can cover their basic financial needs also use BNPL. Like their at-risk peers, they are drawn to the repayment terms and budgeting benefits, but also BNPL's low cost of use. They appear to use BNPL to purchase out of preference rather than necessity, an observation likely attributable to many at-risk consumers as well, given the relatively low loss rates on BNPL loans industry wide.”
The Happiest Users
Compared with their at-risk peers, financially healthy consumers also have higher overall satisfaction with BNPL brands and are more likely to be repeat users, J.D. Power said.
The company reported that in its 2023 BNPL Satisfaction Study, administered simultaneously with the POS Choice Study, financially healthy consumers had an overall satisfaction score of 704 (on a 1,000-point scale) with BNPL brands. At-risk consumers, on the other hand, averaged 577.
The Financially Healthy
“Financially healthy consumers are also more likely to use BNPL again,” J.D. Power said. “More than half (61%) indicated they'd used BNPL more than once in the previous 90 days. This was five percentage points higher than the percentage of at-risk consumers who had used it more than once.”
According to J.D. Power, while the study results reveal that overall satisfaction scores and reuse rates vary significantly between BNPL brands, financially healthy consumers are happier and more likely to reuse on average.
“These findings indicate that BNPL has even more room to grow if lenders make targeted improvements and further accentuate dimensions of their offerings that consumers are more satisfied with,” J.D. Power said.
What Lenders Can Do
J.D.Power said that despite using BNPL for its reasonable repayment terms, consumers “want lenders to do more.”
“They indicate that the reasonableness of terms is more important than other dimensions of the overall BNPL experience,” J.D. Power said. “Yet, consumers have lower satisfaction with those terms than with less important dimensions, such as the security of their account information. BNPL lenders should do more to explain and administer their repayment terms clearly and without any surprises, particularly for consumers who are financially at risk.
“The study also reveals that some BNPL lenders have more work to do than others as satisfaction with the lowest-rated brands was significantly lower than the highest-rated brands,” the company added.
Not to be Forgotten
And, “not to be forgotten, other dimensions of the BNPL experience also matter to consumers,” J.D. Power stated. “Differences between lenders vary significantly across these dimensions as well, indicating targeted opportunities exist for each lender to make improvements that drive even more satisfaction, loyalty and demand for BNPL.”
For additional info: J.D. Power 2023 POS Choice Satisfaction Study and the J.D. Power 2023 BNPL Satisfaction Study.
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