According to a follow-up study published by research firm PYMNTS, Buy Now, Pay Later (BNPL for short) services are expected to increase in availability and reach over the next five years. Young consumers, in particular, are more and more fond of this payment option compared to credit cards.
BNPL services and apps give consumers more choice when it comes to major purchases, and they can be cheaper than using credit cards. However, consumers should always exercise caution when choosing this option, as BNPL users may risk accumulating unsustainable levels of debt.
- Nearly 60% of consumers say they would rather buy now, pay later than by credit card.
- This preference is particularly pronounced among young consumers.
- BNPL payments can be easier to manage than credit card repayments, there is a simple approval process, and BNPL options may charge no interest if the debt is repaid on time.
- However, BNPL’s services can easily cause consumers to take out multiple loans in a short period of time and end up with an unsustainable level of debt.
The rise of the BNPL
An overview of the BNPL landscape is provided by data published by PYMNTS, a market research firm focused on technology and payment systems. According to the company’s Buy Now, Pay Later Tracker survey, nearly 60% of consumers say they prefer buy now, pay later to credit cards. This preference is particularly pronounced among young consumers.
PYMNTS survey respondents gave several reasons for their preference. BNPL payments can be easier to manage than credit card repayments, there is a simple approval process, and BNPL options may charge no interest if the debt is repaid on time.
According to Insider Intelligence, this preference is leading to a boom in BNPL services. These services face increased regulation from the Consumer Financial Protection Bureau (CFPB), which has released plans to regulate BNPL businesses just like credit card companies. Nevertheless, many new companies have sprung up to offer BNPL services, and the value of the industry is expected to reach $76.20 billion in US payments volume by the end of 2022.
Consumers need to be careful
For consumers, the increased availability of BNPL services represents both a blessing and a curse.
Christine Roberts, head of Citizens Pay, a BNPL service offered by Citizens Bank, recently told CNBC that the reason many young consumers are attracted to these services is that many have seen their parents struggle with credit card debt. credit in the midst of the 2008 economic recession, and many see BNPL services as a “safer” option.
In some cases, this may be true. Many BNPL services automatically confirm your payment information and schedule future payments. This means you don’t have to remember to refund your purchases. Generally, if these payments are made on time, you will not pay any interest on your debt.
However, the Consumer Financial Protection Bureau (CFPB) has some concerns about these schemes. They argue that BNPL plans are actually a “close substitute” for credit cards and that borrowers may receive unequal information and protections.
Borrowers are also subject to late fees if they miss a payment, the CFPB also points out, and many BNPL firms do not consider a borrower’s ability to repay their loan. This can easily lead to consumers taking out multiple loans in a short period of time, according to the CFPB, and ending up with an unsustainable level of debt.
Increased payment flexibility is always welcome. However, although BNPL’s services may appear to offer a cheaper and more secure option to credit cards, consumers should exercise caution when using them.
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