EXPERIENCES

Buy now, pay later services provide consumers with convenience. Learn how consumers feel about BPNL and what they're using it to purchase.

Annette Franz

September 30, 2021 | 6 min read

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When it comes to economic recovery, American consumers  continue to lead the way, surprising forecasters with increased spending even as the Delta variant rages.

Spending on big ticket items—like cars, homes, vacations, and luxury items—is up. In fact, high-income spending is up 11% over pre-COVID-19 levels. Forward-thinking retailers eager to tap into this growing spending trend are looking for ways to attract consumers and make it even easier for them to purchase.

One of the fastest growing segments of financial services are “buy now, pay later” (BNPL) services; a modern version of installment financing. BNPL solutions are popping up in the shopping carts of online retailers, offering short-term payment plans for no interest charges or fees. And, shoppers are taking the bait.  

For retailers and investors, BNPL feels like a win-win. The services increase average order value, boost cart conversion, and promise to attract new buyers and a younger consumer demographic. 

But how do consumers feel about the services? As reported in the Wall Street Journal, we conducted a study¹ of 3,353 U.S. consumers to find out what groups are purchasing, what they are buying, and how they evaluate the benefits of using the services. Here’s what we learned.

Who’s buying?

One in 5 U.S. consumers made a purchase using a BNPL service within the last 12 months. Millennials are the most likely to take advantage of the service, with over half saying they are interested, compared to 43% for Gen Z, 40% for Gen X, and 35% for Boomers. Some industry watchers believe that the trend toward BNPL attracting Millennials and Gen Z may indicate a lack of connection between traditional credit card companies and younger consumers. 

Women are somewhat more inclined to use BNPL services than men. However, men prefer to use BNPL services over credit cards.

Usage of BNPL services varies based on income level. More than half of Americans making less than $50,000 a year say they are interested in using the service, compared with 38% of those making $50,000 to $100,000. Just over a quarter of those making $100,000 or more say they would use BNPL services.

Avoiding fees vs. overspending

The leading driver of BNPL adoption might be the most dangerous: affordability. Almost 40% of Americans say their top reason for using the service is to cover purchases they can’t pay for. Affordability is a greater driver among lower-income consumers, with 53% of those making less than $50,000 saying they use BNPL when they can’t afford a purchase.

The second most popular motivation? For 38% of U.S. consumers, it’s avoiding interest charges and fees. Higher-income Americans, who make $50,000 to $100,000, say interest-free financing is their top motivation.

Big ticket items top the list, including healthcare

Technology and furniture rank high for BNPL purchase intentions. Almost four in 10 consumers say they would use BNPL to make a technology purchase and 37% would use it to buy furniture. For women, furniture is their number one spending category with 43% saying they would use BNPL for these purchases.

One out of five consumers making under $50,000 a year say they would use BNPL for healthcare, and 18% say they would use it for groceries. Lower income consumers are more open in general to using the services across all categories and to using BNPL for smaller purchases. One quarter say they would use the services for purchases under $100.

In comparison, 35% of higher income consumers earning over $100,000 say that they would use the service for purchases of over $1,000.

Advantages to retailers

BNPL might deliver more customers for retailers who offer the services. Nearly one in four consumers say they are more likely to buy from a website or retailer that offers BNPL options. Gen Z and Millennials are the most likely to seek out retailers who offer the services, as are those with incomes below $50,000. 

Recent studies show that consumers are likely to spend more and shop more often when using BNLP services. BNLP provider Klarna reported that 44% of shoppers would have abandoned their cart if a BNPL option, like Klarna offers, wasn’t available. And according to research from Adobe, which analyzed trillions of online transactions across 100 million product SKUs, consumers using BNLP services are placing orders that are 18% larger than purchases made with other payment methods.

Impact on consumers

Despite the promise of financial flexibility and interest-free payments, some consumers are feeling the downsides of these services. One in six consumers who have used BNPL within the last 12 months regret their purchase. 

High interest rates, an inability to build credit, and late fees topped the list of regrets for using the services. For 15% of consumers, purchasing unnecessary or too expensive items were the leading reasons for buyers' remorse.

Proponents of the services point out that while consumers can incur costs with BNPL plans, the BNPL model relies on users being able to pay back what they borrow without incurring fees. This is in contrast to traditional credit card providers that have a business model based on charging late fees and interest.

Partnerships to drive widespread adoption

With a global market estimated by Allied Market Research to hit $3.98 trillion by 2030, BNPL providers are in a battle to dominate, and consolidation in the industry is already underway. Competition will come from tech and retail giants, as well as credit card companies making a pivot to create BNPL offerings.

For example, Affirm entered into partnerships with Amazon and Walmart, in a move that puts its service in front of a massive audience of online shoppers. In addition, Square recently acquired BNPL provider Afterpay, and PayPal acquired Japanese BNPL provider Paidy, to expand its payment capabilities in Japan’s cash-driven economy. 

Apple has launched Apple Pay Later,  an extension of its partnership with Goldman Sachs, which will provide the credit service. The move will likely drive Apple Pay adoption and encourage consumers to use Apple iPhone to pay for items instead of standard credit cards. 

Visa is leading the charge from the credit card companies with its Visa Installments BNPL service. The company recently announced a partnership with payment technology provider i2c to accelerate the deployment of its installment payments plans in North America. 

One thing is for sure: After almost two years of economic uncertainty, BNPL services are a bright light for retailers who hope to tap into a wave of consumer spending. The question is whether these services are good for consumers, and will live up to promises of improving consumer financial management, or contribute to debt.

Jon Cohen is chief research officer at Momentive.

¹This Momentive study was conducted between August 18-20, 2021 among a national sample of 3,353 adults. Data is weighted for age, race, sex, education, and geography using the Census Bureau’s American Community Survey to reflect the demographic composition of the U.S.