Member Exclusive

Buy now, regret later? The tricky relationship between BNPL and credit ratings

  • As BNPL use has surged through the pandemic, consumers’ credit scores have taken a significant hit.
  • Research shows more than a third of BNPL users have fallen behind on their payments and hurt their credit score.
close

Email a Friend

Buy now, regret later? The tricky relationship between BNPL and credit ratings

Buy Now, Pay Later has grown massively over the last couple of years. Aside from its ease of use and flexible payment terms, BNPL’s popularity surged due to the sustained growth in e-commerce through the pandemic. Store closures and stay-at-home orders compelled people to shop online, which many did out of necessity and others did to cope with stress.

In 2019, Americans spent $20 billion on retail purchases using BNPL programs. This number increased to $24 billion in 2020, and is on track to reach $100 billion this year. All this growth has made BNPL a hot commodity across a variety of industries. Whether it’s banking and fintech heavyweights like Goldman Sachs, Visa, Mastercard, Square and PayPal, or tech and retail giants like Apple, Amazon, Shopify, Walmart, Ikea and Macy’s, everyone wants in.

Meanwhile, the economic uncertainty brought by the pandemic has dented the popularity of credit cardsin the U.S., especially among younger consumers who are wary of the downsides of excessive credit card use, such as overspending, impulsive purchases, and mounting debt. These consumers are readily switching over to BNPL, which has marketed itself as a viable, zero-interest alternative.

Yet, recent research suggests that BNPL users may be falling into the same traps that they were hoping to escape by abandoning their credit cards. More than a third of BNPL users (34%) have reportedly fallen behind on one or more payments, according to a study published by Credit Karma. Furthermore, almost three-fourths (72%) of these consumers believe their credit score has declined as a result of missing the payments.

But why are so many BNPL users falling behind on their payments?

“BNPL has made it easier than ever to purchase an item, without even thinking about the implications of the purchase. It’s this disconnect between making a purchase and actually paying for it where consumers can get in trouble,” explained Colleen McCreary, chief people officer and financial advocate at Credit Karma. “For some, it’s even a matter of forgetting to make the payment on time, rather than not having the funds.”

 

 


This content is available exclusively to Tearsheet Outlier members.

Tearsheet Outlier information and signup Missing out? Subscribe today and you’ll receive unlimited access to all Tearsheet content, original research, exclusive webinars and events, member-only newsletters from Tearsheet editors and reporters and much more. Join Outlier now — only $49/mo. Already an Outlier member? Sign in to your account

0 comments on “Buy now, regret later? The tricky relationship between BNPL and credit ratings”

Blockchain and Crypto, Member Exclusive

Can crypto become the new cash? A look at adoption patterns for consumers and merchants

  • Market volatility raises concerns, but recent data suggest that cryptocurrencies may be on their way to adoption for commerce.
  • Most consumers want to be able to pay with crypto, and merchants are starting to cater to this need in earnest.
Rabab Ahsan | August 08, 2022
Green Finance, Member Exclusive

Green Finance Briefing: What’s a sustainable business strategy in banking?

  • Executives need to start thinking of how to create and execute a sustainability strategy as the economy transitions to a carbon-neutral future.
  • At Tearsheet's Banking on the Planet conference, speakers outlined how financial companies can start on their sustainability journeys – it's all about education, collaboration and transparency.
Iulia Ciutina | August 05, 2022
Member Exclusive, Payments

Payments Briefing: What do FIs need to know about payments in the metaverse?

  • This week, we look at how and why traditional FIs and fintechs should be thinking about payments in the metaverse.
  • We also discuss why card giants like Mastercard, Visa, and Amex are getting involved in sonic branding.
Ismail Umar | August 04, 2022
Member Exclusive, Online Lenders

Lending Briefing: The digital lending fintechs attracting capital in a down market

  • Funding is down across the fintech sectors compared to last year, with less capital going to big segments like payments, baking, and lending.
  • We are taking a look at some of the digital lending fintechs that still secured financing in this past quarter, in spite of the down market.
Iulia Ciutina | August 03, 2022
Data Snacks, Member Exclusive

Data Snack: Are banks making the most of marketing?

  • As banks become more of an option among many in consumers’ eyes, banks are paying more attention to how to better market themselves.
  • But gaining insight from the marketing data collected may still be a challenge for a lot of incumbents.
Rivka Abramson | August 02, 2022
More Articles