OMAHA, Neb.–A new survey shows just to what extent the popularity of buy now, pay later (BNPL) solutions is surging among consumers, but it also reveals potential pitfalls related in part to some of the industry's lenient approach to credit during the application process.
In addition, among the other survey findings of special interest to credit unions: two-in-three of those surveyed prefer using BNPL over using a credit card, and if a consumer had multiple BNPL accounts open at once, they were more prone to overspending, missed or late payments, and poor credit history.
The survey, conducted and released by Breeze, noted BNPL is “one of the hottest personal finance trends, and it's rolling into 2022 with plenty of momentum.”
In addition to releasing its survey findings, Breeze also noted:
- This past Cyber Week – from Nov. 23 to 29 – Salesforce found BNPL use shot up 29% year-over-year. PayPal's own BNPL service saw a 400% increase on Black Friday compared to the same day in 2020.
- Klarna, one of the preeminent BNPL companies, has 90-million active users across 20 countries and doubled its U.S. audience to 20 million from June 2020 to August 2021.
- Affirm, has doubled its user base since September 2020, while also announcing partnerships with Amazon and Target, and seeing its stock price jump to $164 in November 2021.
- Square, a payment giant, bought BNPL company Afterpay for $29 billion this past summer, its largest acquisition to date.
No Signs of Slowing Down
“Already a $100 billion industry, BNPL is showing no signs of slowing down,” stated Breeze. “It's a credit card without the interest. It's layaway, but you can possess it right now. But like anything else, there are pitfalls. For BNPL, it's consumers spending money they don't readily have and overreaching their credit by opening multiple BNPL accounts at once.”
In a survey of 1,500 Americans, Breeze reported it found:
- 74% of poll participants indicated they have used BNPL to purchase something in the past. This is an increase from a July 2021 C+R Research report that found 60% have used BNPL.
- According to Breeze, the “key takeaway from this first section? BNPL is more popular amongst younger, online-savvy consumers, but still popular across the board.”
- Among BNPL users, $500 was the median price point where they prefer to start using BNPL. $2,030 was the average price point.
- 62% of BNPL users think their BNPL usage will increase in 2022, 38% believe it will decrease.
BNPL and Overspending
Other findings in the survey include:
- 57% of BNPL users said the service has caused them to spend above their means (i.e. buying things they normally couldn't afford upfront).
- “One possible reason according to our data? Opening multiple BNPL accounts at once. Sometimes, BNPL companies won't check if an applicant has other BNPL accounts open.”
- 41% of BNPL users indicated they have had multiple accounts open at the same time before.
- 36% of BNPL users said they have missed or made a late BNPL payment at least once before. “This was also strongly correlated to having multiple accounts open at once,” Breeze said.
- Moreover, 45% of BNPL users said one of the main reasons they use BNPL is due to having poor credit history and usually not being eligible for a credit card. Once again, this was very correlated to having multiple accounts open at the same time and possibly suggests BNPL is distributing too much unwarranted credit.
- The key takeaway here? “Because there's often not a vigorous credit check for a BNPL account, consumers can quickly overextend past a comfortable financial situation, especially if they are opening multiple BNPL accounts at once,” Breeze stated. “This makes it more likely to miss or make late payments, which can damage credit and cause late fees.
2 in 3 Prefer BNPL to Credit Card
Other findings:
- 63% of BNPL users believe BNPL is a better product for financing purchases compared to a credit card. 37% said a credit card is the better financing option.
- 61% of BNPL users said BNPL has reduced their credit card usage, while 39% said it has not.
- What's the key takeaway? “BNPL has emerged as a direct competitor to credit cards; the latter still dwarfs the former, but this is a trend to keep an eye on moving forward,” Breeze stated.
For the full survey, go here.