Buy now, pay later (BNPL) may not be the most used payment option this holiday season, but it’s definitely the fastest-growing and most talked about, as consumers young and old are increasingly turning to the zero-interest or low-cost installment plans to spread out the cost of their purchases.
With providers such as Bill Me Later / PayPal Credit, Afterpay, Affirm, Klarna and FuturePay all vying for a larger slice of the BNPL pie, as well as further availability through retailers online and in-store, it’s no wonder why this payment choice is on the rise.
According to PYMNTS’ new study, Buy Now, Pay Later: Millennials and the Shifting Dynamics of Online Credit, which surveyed nearly 15,000 U.S. consumers from March to September, users and use cases for BNPL are clearly on the rise.
Here are five key BNPL takeaways from the report.
BNPL Is Not A Last Resort
While some pundits have said rising BNPL use is due to younger consumers’ aversion to – or lack of – traditional forms of credit, the PYMNTS study showed a different reality. Specifically, this financing option is not a last resort, because the majority of BNPL users have higher-than-average incomes as well as access to multiple payment options, including credit cards. The fact is, shoppers frequently choose BNPL because they like it.
BNPL Offers Are Cheap And Easy To Understand
One of the main reasons consumers used BNPL, the study showed, is because the offers were straightforward and easy to understand, or offered better terms than traditional payment options. In fact, roughly 40 percent of respondents cited clarity of fees and interest rates or the ability to monitor spending as the reasons they use installments to make online purchases. This reinforces the finding that BNPL users tend to be budget-conscious and financially responsible. Rather than blindly putting charges on their credit cards or accepting unclear or exorbitant financing terms, the use of a short-term, structured repayment plan with no interest charges suggests that they want to stay within their means.
Consumers Want To See More BNPL
BNPL may not be widely used today compared to other online payment options, but the same cannot be said for BNPL’s market potential, the study said. For example, when surveying consumers who had never used BNPL, nearly 40 percent of millennials said they would be very interested in using BNPL solutions if they were more widely available within digital wallets. When measuring all demographics, the share of potential users who said they would be “very” or “extremely” interested in paying with an installment plan was more than three times greater than the 6.4 percent of consumers who currently use BNPL plans.
Flexible BNPL Terms
Beyond increasing BNPL availability to digital wallets, the survey showed that the availability of different, flexible repayment terms was also important to consumers. When presented with three basic repayment scenarios – three months to pay for purchases over $30 with 0 percent interest, no fees if paid in full within six months or four equal payments with 25 percent down – the popularity of each proposed BNPL plan type was actually quite similar, though bridge millennials showed the highest interest in each type, with 32 percent saying they would be “very” or “extremely” interested in various offers. This suggests that the ability to opt for financing methods tailored to their unique circumstances and preferences helps make BNPL particularly attractive to this demographic. That flexibility is itself an attractive aspect of BNPL, since it allows users the ability to control the terms of repayment.
Increasing Spending Choices
With companies like Afterpay already offering BNPL to pay for things airline tickets and dental appointments in Australia, the use cases and point-of-sale opportunities are on the rise and theoretically limitless, including for the purchase of staples and discretionary items. For now, the BNPL use case in the U.S. is still dominated by clothing purchases 63 percent of the time, which is more than double the share for any other product type. However, entertainment at 30.3 percent, reading materials at 29.4 percent and household furnishings at 28.7 percent mark other categories with significant share of BNPL.
With numerous global BNPL players actively working to grow their share of the spending pie and moving aggressively into in-store availability, it would suggest that there will be substantially more BNPL usage 12 months from now.
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