BNPL’s appeal isn’t just limited to financially vulnerable consumers

Buy Now Pay Later (BNPL) is gaining ground on credit cards in the mainstream payments space. 4 in 5 shoppers choose BNPL to avoid credit card debt and 28% of US consumers have used it at least once in the last quarter.

Although BNPL usage tends to be higher among the financially fragile or those who are credit-invisible, that isn’t always the case. A recent J.D.Power report highlights that this mode of payment is equally appealing to financially sound consumers because of their liking/preference for the repayment terms – even though they may have the means to pay for their purchases upfront. 

Reasonable repayment terms top the list of why consumers choose BNPL at checkouts, followed by other reasons such as budgeting and low cost of use.

Nearly one-fourth (23%) of financially comfortable consumers already use BNPL and more than half (61%) have used BNPL on more than one occasion over the span of three months. Using BNPL allows these individuals the extra cushion to keep their emergency funds intact by allocating funds for unexpected expenses while dividing the cost of planned purchases.

Compared to their vulnerable peers, financially secure consumers have a higher satisfaction level with BNPL brands. The latter had an overall satisfaction score of 704 (on a 1,000-point scale) with BNPL providers, compared to at-risk consumers who scored 577 on average, according to the report.

The never-ending cycle of loans on top of loans

On the other end of the spectrum, the BNPL model has been finger-pointed for luring consumers to spend more than they otherwise would. As total consumer debt hit $16.84 trillion in Q2 2023, that concern among experts still runs high. 

“With soaring borrowing rates and delinquencies continuing to rise it is critical that BNPL providers find new sectors and use cases for their services. The bigger question [for me] is whether this is good for consumers and the wider economy?” said Richard Wray, COO at Carta Worldwide, a card issuance platform.

Although BNPL can offer benefits, it's still a form of debt, and late payments or excessive usage can lead to financial challenges affecting users’ credit scores or limiting their ability to finance future purchases. 

Despite this possibility, the financially fragile consumer segment had the highest level of BNPL usage in the recent quarter among the total population, according to the report.

BNPL is a work in progress

There’s still a long way to go before BNPL can reach similar usage levels as credit cards. 

The nascent space comes with risks, fees, and policies that may vary across different lenders. This variability can make it challenging for consumers to compare and understand the repayment terms – that can be a boon to bane in case of missed payments. Part of this conundrum stems from the paucity of financial literacy across the board. A lack of clear communication from BNPL lenders, including passing on information on risks consumers should consider before entering into a BNPL arrangement, understanding repayment terms to which they are agreeing, and the penalties that can follow, further compounds the situation. Besides, the BNPL industry has expanded quickly, with many new providers entering the market. The speed of this growth has likely outpaced efforts to create consistent and transparent industry standards to some extent.

“As BNPL is an unregulated industry, consumers are at the mercy of the providers,” said Rob Brockington, CEO of financial wellbeing platform, Claro Wellbeing. “With financial pressure already at a high, this is a real danger for customers,” he added.

Furthermore, consumers want BNPL providers to introduce additional capabilities beyond what they currently offer. Reward programs, higher credit limits, and the same level of availability that credit cards offer across various merchants are some of the features they would like to see in the near future.