Study: Buy Now, Pay Later is surging but many consumers overextend their credit

• We found Buy Now, Pay Later (BNPL) is surging in popularity, especially amongst younger consumers and as an alternative to credit cards.
• But, we also saw BNPL has potential pitfalls related in part to some of the industry's lenient approach to credit during the application process.
• One correlation stuck out from our study: If a consumer had multiple BNPL accounts open at once, they were more prone to overspending, missed or late payments, and poor credit history.

Buy Now, Pay Later is a financing service that allows a consumer to purchase and possess something immediately (usually online), but pay it off in equal installments, often at no interest.

It's one of the hottest personal finance trends, and it's rolling into 2022 with plenty of momentum.

This past Cyber Week – from November 23 to 29 – Salesforce found BNPL use shot up 29% year-over-year. PayPal's own BNPL service saw a 400% increase on Black Friday compared to the same day in 2020.

Klarna, one of the preeminent BNPL companies, has 90 million active users across 20 countries and doubled its US audience to 20 million from June 2020 to August 2021.

Another juggernaut, Affirm, has doubled its user base since September 2020, while also announcing partnerships with Amazon and Target, and seeing its stock price jump to $164 in November 2021. Square, a payment giant, bought BNPL company Afterpay for $29 billion this past summer, its largest acquisition to date.

Already a $100 billion industry, BNPL is showing no signs of slowing down.

It's a credit card without the interest. It's layaway, but you can possess it right now.

But like anything else, there are pitfalls. For BNPL, it's consumers spending money they don't readily have and overreaching their credit by opening multiple BNPL accounts at once.

Late fees and debt collectors still apply to BNPL, and it looks like credit bureaus will start accounting for BNPL activity. BNPL has now popped up on the Capitol Hill radar as well.

To better understand the growth and usage of BNPL, Breeze recently conducted a survey of 1,500 adult consumers. Here's what we found...

3 in 4 Americans have used BNPL

Note: If you'd like to see the raw data or data broken down by state, gender, race, age, etc., please email me at [email protected]

• 74% of poll participants indicated they have used BNPL to purchase something in the past. This is an increase from a July 2021 C+R Research report that found 60% have used BNPL.
• Amongst BNPL users, $500 was the median price point where they prefer to start using BNPL. $2,030 was the average price point.
• 62% of BNPL users think their BNPL usage will increase in 2022, 38% believe it will decrease.
• The key takeaway from this first section? BNPL is more popular amongst younger, online-savvy consumers, but still popular across the board.

57%: BNPL has caused overspending. Are multiple accounts to blame?

• 57% of BNPL users said the service has caused them to spend above their means (i.e. buying things they normally couldn't afford upfront).
• One possible reason according to our data? Opening multiple BNPL accounts at once. Sometimes, BNPL companies won't check if an applicant has other BNPL accounts open.
• 41% of BNPL users indicated they have had multiple accounts open at the same time before.
• 36% of BNPL users said they have missed or made a late BNPL payment at least once before. This was also strongly correlated to having multiple accounts open at once.
• The key takeaway here? Because there's often not a vigorous credit check for a BNPL account, consumers can quickly overextend past a comfortable financial situation, especially if they are opening multiple BNPL accounts at once. This makes it more likely to miss or make late payments, which can damage credit and cause late fees.
• Moreover, 45% of BNPL users said one of the main reasons they use BNPL is due to having poor credit history and usually not being eligible for a credit card. Once again, this was very correlated to having multiple accounts open at the same time and possibly suggests BNPL is distributing too much unwarranted credit.

2 in 3 prefer BNPL to credit card

• 63% of BNPL users believe BNPL is a better product for financing purchases compared to a credit card. 37% said a credit card is the better financing option.
• 61% of BNPL users said BNPL has reduced their credit card usage, while 39% said it has not.
• What's the key takeaway? BNPL has emerged as a direct competitor to credit cards; the latter still dwarfs the former, but this is a trend to keep an eye on moving forward.

Are you struggling to meet large expenses?

• Are you having to use Buy Now, Pay Later because you don't have sufficient savings to afford large expenses all at once?
• Now consider how long those savings would last if you suddenly stopped earning an income due to a disabling injury or illness...
• Having disability insurance could protect against limited personal savings. Disability insurance replaces a portion of your income (usually up to 80%) if an injury or illness keeps you from working and earning a living.
• There's long term disability insurance, which is meant for more severe injuries and illnesses because benefits can last up to 10 years or until retirement. And for more temporary ailments, there's short term disability insurance. Benefits for this type will usually last between three and six months.
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Methodology

All data found within this report derives from a survey created and commissioned by Breeze and conducted online by survey platform Pollfish. In total, 1,500 adult Americans were surveyed. The appropriate respondents were found via Pollfish’s age filtering feature. This survey was conducted over a four-day span, starting on January 4th, 2022 and ending on January 7th, 2022. All respondents were asked to answer all questions truthfully and to the best of their abilities.

Full survey results

Notes: Some answers won't add up to exactly 100% due to rounding.

If you'd like to see the raw data or data broken down by state, gender, race, age, etc., please email me at [email protected]

1. Have you ever used a Buy Now, Pay Later service to purchase anything?

• 74% answered "yes"
• 26% answered "no"

2. (Asked only to those who answered "no" to Q1) Have you ever heard of Buy Now, Pay Later services?

• 84% answered "yes"
• 16% answered "no"

3. (Asked only to those who answered "no" to Q1) Buy Now, Pay Later is a financing product that allows you to immediately purchase and possess products bought online and repay those purchases through equal regular payment installments, usually at 0% interest. Would you be interested in using such a service?

• 61% answered "yes"
• 39% answered "no"

4. (Asked only to those who answered "yes" to Q1) Did you use a Buy Now, Pay Later service (Affirm, Afterpay, Klarna, etc.) to buy gifts for the 2020 holiday season?

• 60% answered "yes"
• 40% answered "no"

5. (Asked only to those who answered "yes" to Q1) Did you use a Buy Now, Pay Later service (Affirm, Afterpay, Klarna, etc.) to buy gifts for the 2021 holiday season?

• 60% answered "yes"
• 40% answered "no"

6. (Asked only to those who answered "yes" to Q1) Has using a Buy Now, Pay Later service caused you to spend above your means (i.e. buy things you couldn’t normally afford upfront)?

• 57% answered "yes"
• 43% answered "no"

7. (Asked only to those who answered "yes" to Q1) What do you think is a better product for financing purchases, a credit card or Buy Now, Pay Later services?

• 37% answered "credit card"
• 63% answered "Buy Now, Pay Later services"

8. (Asked only to those who answered "yes" to Q1) Has using Buy Now, Pay Later services reduced your credit card usage?

• 61% answered "yes"
• 39% answered "no"

9. (Asked only to those who answered "yes" to Q1) Have you ever had multiple Buy Now, Pay Later accounts open at the same time (i.e. owing multiple payments to different accounts at the same time)?

• 41% answered "yes"
• 59% answered "no"

10. (Asked only to those who answered "yes" to Q1) Have you ever missed or made a late payment for a Buy Now, Pay Later service?

• 36% answered "yes"
• 64% answered "no"

11. (Asked only to those who answered "yes" to Q1) Are you aware that some Buy Now, Pay Later services will run a hard-credit inquiry before approval and will also report payment and account history to credit bureaus?

• 65% answered "yes"
• 35% answered "no"

12. (Asked only to those who answered "yes" to Q1) Is one of the main reasons you have used Buy Now, Pay Later services due to you having a poor credit history and usually not being eligible for a credit card?

• 45% answered "yes"
• 55% answered "no"

13. (Asked only to those who answered "yes" to Q1) At what price point would you want to start using a Buy Now, Pay Later service to finance a purchase (i.e. you’d want to use Buy Now, Pay Later for anything at this price or above)?

• Amongst BNPL users, $500 was the median price point where they prefer to start using BNPL. $2,030 was the average price point.

14. (Asked only to those who answered "yes" to Q1) Do you think your Buy Now, Pay Later usage will increase or decrease in 2022?

• 62% answered "increase"
• 38% answered "decrease"