Can BNPL reach similar usage levels as credit cards?

While credit cards cannot be easily outstripped in the US, Buy Now Pay Later (BNPL) as a competitor to credit cards in consumer lending is here to stay. 4 in 5 shoppers choose BNPL to avoid credit card debt, according to Experian.

The lines are becoming blurred between credit cards and BNPL as consumers are constantly shuffling their payment preferences, fine-tuning an optimal blend of the two most preferred payment options, according to a new report by PYMNTS.

Who, where, and why

28% of users have used deferred payment schemes in the last three months, of which bridge Millennials and Gen X consumers spend more money on deferred payment plans than the average consumer. 19% used BNPL and 18% used credit card installment plans. While older generation and higher income consumers tend to stick with credit cards, Millennials, Gen X, and those lagging in financial stability go down the route of installment loans and are increasingly inclined to hold on to a BNPL plan.

The report also indicates that consumers decide their mode of payment depending on the size of their transaction. On average, consumers spend $339 per purchase with BNPL and $482 per purchase with credit card payments in the last three months. 

Millennials and Gen Z consumers make up the greatest share of the BNPL user base. Millennials spent approximately $440 per purchase with BNPL — nearly $100 more than other age groups. Although BNPL doesn’t surpass credit card usage, it is still making strides with more customers embracing the ability to break large payments into smaller chunks as they grapple with the rising cost of living.

Those who use BNPL are highly satisfied with the payment method, too. Three-quarters of consumers – comprised of 76% of Millennials and 56% of Gen Z – feel fairly positive about their BNPL experiences. Consequently, they plan to continue their payment cycles with brands that offer BNPL options.

But consumers want more…

Although a significant portion of users are inclined toward BNPL because of the ease and interest-free payment plans, the fact remains that they can’t get rewards with BNPL. On the other hand, the opportunity to earn rewards and cash back on purchases maintains the ultimate appeal of credit cards among consumers to date.

A majority of consumers value credit card payments primarily to fund larger ticket purchases with enhanced security and the opportunity to earn rewards. They expect BNPL providers to eventually 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 reasons that are high up on the list when it comes to what features consumers want from BNPL in the near future.

Investing in features to meet consumers’ expectations can open the door for increased adoption and also stand out as a differentiating factor for BNPL providers in a crowded and evolving BNPL space.