By Ray Birch
CHICAGO—As analysts dive deeper into buy now, pay later (BNPL) repayment data, they are going to find the fast-growing payments alternative is actually helping many consumers’ better manage their finances, which runs counter to the concerns expressed by many, according to one analyst.
The CFPB and other consumer organizations have expressed worries that as the use of BNPL grows, it will lead to an accumulation of debt that will damage many consumers’ household balance sheets. As a result, the CFPB and others have called for BNPL to be tightly regulated.
“One thing we found is many consumers think BNPL transactions are already on their credit report,” said Liz Pagel, SVP of consumer lending and business leader TransUnion. “I think there's a consumer education component around this.”
‘Handled Pretty Well’
One place consumers don’t need to be educated? How to use BNPL, which has been growing quickly.
“From talking to lenders, consumers have handled this product pretty well,” Pagel said. “Delinquency rates are relatively low compared to some other products, and consumers want to get credit for their on-time payments—and for being able to manage something like this.”
Pagel said TransUnion sees opportunities for BNPL to drive financial inclusion.
“We see opportunities where consumers could finance a purchase, make sure they can afford it and make the payments, and start building credit files,” she said. “That's a lot more straightforward way to build credit than some of the hurdles you have to jump through these days.”
Pagel acknowledged that perspective runs counter to concerns the CFPB and others have shared about consumers getting into financial trouble as a result of BNPL.
‘Handled Pretty Well’
“Again, once we started looking at the data more closely, and from talking to lenders, people handle this product pretty well,” Pagel said. “Looking at (TransUnion’s latest BNPL study), consumers are generally not using BNPL for huge purchases and they pay them off quickly. If the purchase is paid off in six weeks, it's hard to be a really significant burden people can't handle.”
Liz Pagel
Pagel pointed out concerns over BNPL delinquencies are not supported by the data.
“I personally believe BNPL is a really responsible product for consumers to use, especially for consumers who may be carrying balances on a credit card that these days are at a pretty high interest rate,” she said. “If you have the option to put yourself on a very disciplined repayment plan, making payments every two weeks at 0% interest, and if the alternative is putting that purchase on a high-interest-rate credit card you weren't planning on paying off that month…It's actually a really smart financial decision.”
Pagel contends BNPL is likely a tool that helps consumers be more responsible with their credit cards.
‘Core Part of Wallet’
“It's clearly a product that consumers have embraced as a core part of their wallet,” she said. “Many consumers have used it, our study shows. Eighty percent of respondents said they use it more than once a year. They are finding BNPL to be just another tool their payments toolbox.”
That isn’t to say there aren’t some reasons to worry, as some have expressed concerns over consumers using BNPL for small purchases such as coffee and haircuts.
‘Only Time Will Tell’
“Consumers use their credit cards for those types of purchases as well,” Pagel said, adding more data over a greater period of time is needed to determine whether BNPL for small purchases could be harmful to consumers’ balance sheets. “Only time will tell there. I think everyone's nervous because BNPL is not visible on credit reports and we can't study it well that way. It's hard to really prove that this is something that's a valuable tool until we get all the data.”
High Satisfaction Rates
The TransUnion study shows that 89% of respondents said they were satisfied or very satisfied with the product and with the experience.
“That's pretty high for a financial services product,” Pagel said. “That really tells me this product is here to stay and probably will continue to grow.”
The data also reveal that consumers use BNPL across the age and credit risk spectrums.
“So, while in the beginning it was more younger consumers and more higher-risk consumers using BNPL, it has become more popular across all different credit bands and age groups,” Pagel said.
What’s Ahead?
What does the study suggest about the future of BNPL?
“Moving forward, BNPL, in my opinion, will be even stronger,” Pagel forecast. “The data has confirmed, even more to me, that this is a mainstream credit product consumers. It is going to be part of a lot of people’s wallets going forward. Therefore, it's even more important to bring it into the mainstream by getting BNPL on credit reports, help consumers build credit with it.