Why more Americans are turning to Buy Now, Pay Later payment plans, in 4 charts

CNN
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Buy Now Pay Later services had their best day yet on Cyber ​​Monday, with consumers spending a record $991.2 million, according to Adobe Analytics.

With holiday shopping in full swing, US consumers are making more purchases using these services, known in the industry as BNPL.

So far in 2024, BNPL’s spending has surpassed previous years in the United States. Consumers spent a total of $75.1 billion with BNPL in 2023, up from $65.6 billion in 2022, up 14%.

Experts warn that while these services can offer flexibility, they also come with financial risks, especially for the young and the financially constrained. Consumers who tend to trust BNPL services the most.

Retailers across all markets have increasingly embraced BNPL options as they convert counter shoppers into shoppers and encourage those customers to check out with fuller carts, according to a recent report. to analyze.

BNPL payment plans mainly affect shoppers who typically spend less and are more dependent on credit cards, said Dionysius Ang, a consumer researcher and associate professor at the University of Leeds in England.

“The apparently financially constrained, credit card users and small-basket shoppers tend to see the biggest increase in spending after the adoption of Buy Now, Pay Later,” Ang told CNN.

Users of BNPL services are likely to face financial difficulties, a survey From the Federal Reserve Bank of Philadelphia. BNPL buyers are likely to be unable to pay one or the other bill and worry about making ends meet next year. More than twice the percentage of BNPL users lost government benefits, were displaced due to housing costs, experienced a natural disaster/weather event, or were evicted in the past year compared to non-users.

BNPL users also tend to be younger, depending Bank rate. More than half of Gen Z and Millennials report having used a BNPL service, compared to a quarter of Baby Boomers.

BNPL appeals to youth who are hesitant to take on credit card debt or who can struggle for acceptance for a credit card, Ted Rossman, senior industry analyst at Bankrate, told CNN.

While consumers perceive BNPL services as a safer alternative to credit cards, experts warn of risks.

“I worry that consumers will be overstretched financially and unable to make payments, get into trouble with debt collectors and destroy their credit,” Consumer Reports researcher Lisa L. Gill told CNN.

BNPL services were freely regulated Before the Consumer Financial Protection Bureau issues a rule in May BNPL classifies lenders as credit card providerswhich provides consumers with additional legal rights and protections, such as the right to dispute charges and the right to request a refund after a refund has been made.

Young people are not only more likely to use BNPL services, but they may encounter problems. Only 24% of Gen Z users and 35% of BNPL Millennial users reported never having a problem with BNPL services, compared to 68% of Baby Boomer users, according to one. Bank rate survey

While most traditional BNPL services require interest-free payments, some carry interest or late fees that consumers may not be aware of. 24% and 21% of Gen Z and Millennial users, respectively, reported missing a payment.

The most common problem reported by Gen Z and Millennial users was overspending.

Rossman said that like credit cards, BNPL can be a useful financial planning tool, but only when used carefully.