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Buy now pay later boom shows no signs of slowing this holiday season


Betsie Van der Meer | DigitalVision | Getty Images

It is not slowing down.

Over the past year, shoppers have been flocking to this option. online shopping has surged amid the pandemic, benefiting fintech companies like Affirm, KlarnaPlease see the following: SquareAfterpay allows users to pay other platforms such as PayPalTo continue in this direction and threaten credit card companies and banks.

A recent CNBC survey shows that BNPL usage is poised for growth this holiday season.

According to the survey, seven percent of respondents said that they plan on using BNPL in holiday shopping this year. CNBC/Momentive Small Business Survey for Small Business Saturday. Momentive conducted this survey between Nov. 10 and Nov. 12. It included 2,744 participants.

While that 7% still pares in comparison to other traditional payment methods – 55% of shoppers say that will use debit cards, 51% will pay with credit cards, and 43% say they will use cash – experts say that percentage could easily be doubled or tripled in the next year.

Lex Sokolin (head economist, ConsenSys global fintech co-head) stated that “the important thing” isn’t the adoption rate of 7%, but rather the fact the number is increasing.  

The younger generation is pushing adoption

This is evident because younger customers seem to be driving a lot of BNPL’s recent growth.

CNBC/Momentive polled 12% of those aged 18 to 34 years who said that they used buy-now pay-later for holidays purchases. BNPL was used by 0% of 65-year-olds to purchase holiday gifts.

Ted Rossman (senior industry analyst, CreditCards.com) stated that the “Buy Now Pay Later” user is definitely younger. It is more of a Gen Z or millennial thing.  

Rossman says that the perception that BNPL is only for young people with low credit scores and money seems to have changed. These people are numerous. do have credit cardsHowever, they use the buy-now-pay later method selectively.

Retailers are helping retailers to adopt the payment method. Confirm scored a major partnership with Amazon in August that would let customers split purchases of $50 or more into smaller monthly installments. The deal between the two companies was expanded in November. Affirm also worksWith more than 12,00 other merchants, including Peloton Walmart.

Acquisitions also help fuel BNPL. SquareBlock is the new name for a company called ‘block’. bought Afterpay for $29 billion in August, while PayPal announced a plan to buy Japanese fintech company Paidy for $2.7 billion in September.

CNBC’s Jim Cramer was told by Dan Schulman, CEO of PayPal, that PayPal’s holiday payment service “is one of the stars” of this season.

In the United States, PayPal introduced an option for installment payments in late 2020.

Black Friday saw a 400% increase in buy now, and then pay later volume year-over year. Schulman said that 750,000 transactions were made in Black Friday alone.

Overall, the use of the payment method globally during Cyber Week — from Nov. 23 to Monday — jumped 29% year over year, according to Salesforce data. Salesforce data shows that 4% of Black Friday orders were made in America using a installment-based, short-term payment method.

Rossman stated, “And they make everything so simple, right at checkout.”

These are benefitsThis option can be used as a temporary financial solution for small purchases. risks to using BNPLThe debt issues that consumers can potentially face in the long run.  

Rossman stated that fixed-rate plans appeal to young adults who are unable or unwilling to access credit and have student loans. He said that the BNPL option’s predictability is appealing to users who have grown up during a turbulent financial period with Covid and the Great Recession.   

Sokolin states that although buy now, pay later companies can be a short-term solution to delinquency risk. However, BNPL could have serious consequences for consumers credit markets in the long term. 

According to Sokolin, the BNPL model can sometimes be backed by transaction fee that underwrites credit. This “moves risk to other destinations” instead of eliminating it. 

Sokolin explained that although it’s difficult to pinpoint the exact impact of these factors, they do generate competition, which will likely drive down borrowing costs. This will lead to more borrowing and possibly worse financial outcomes as people become more indebted. 

Underserved consumer demographics

Buy now pay later is moving “upmarket,” according to Rossman, with the “Henry” consumer — the high earner but not yet rich — using it more often.

The consumer is an up-market individual with a minimum salary of $75,000. He has sufficient credit to get approved for credit cards, but is drawn to the predictability and buy now/pay later loan installments. 

Rossman stated that it’s not necessary that you have little money or don’t credit as much, though that can sometimes be the case. I believe that predictability is what certain people are attracted to more than anything. [That]This applies again to young adults.” 

Income is a major factor. BNPL offers short-term financing for consumers who aren’t eligible for credit cards due to low income or credit scores. CNBC/Momentive surveyed those who used BNPL for holiday shopping. 10% of respondents made $50,000 per year, while 6% said they would use BNPL if their income was between $100,000 and $50,000. Only 4% were earning more than $100,000.

CNBC’s Small Business Survey also reported higher BNPL popularity among Black and Hispanic Americans – with 12% of Blacks saying they will use BNPL for holiday purchases and 13% of Hispanic Americans saying they will use BNPL. This is compared to the 5% who said it would be used by white Americans and 33% for Asian Americans. Black Americans and Hispanic Americans are both lower than whites (56% and 70% respectively), while Asian Americans (56%) use credit cards to shop for holidays.

There is a racial disparity in BNPL usage, which raises the issue of financial discrimination and barriers to minorities seeking financial services. Sokolin explained that “there is likely to be an interconnected, complex relationship between economic structures and income distributions in the U.S.,” which could be tied to labor history and race. He said that there is evidence of an ethnic bias and it is related to both economic status as well as cultural heritage.  

Because of the widening income gap between minorities and white Americans, it’s difficult to distinguish BNPL trends from other credit industry trends. 

“I’d like to see these numbers in relation to the overall indebtedness in households in the U.S.” he stated. White Americans have a higher average income, and are able to service their debts more easily.

According to Sokolin, the problem minorities have with BNPL purchasing options is how to finance consumption.

Accenture’s Afterpay study found that 64% of American adults could pay theoretically. emergency expenses of $400The majority of adults report not being able to cover this expense with savings or cash. Only 12% reported having any other options. According to the September report “The Economic Impact Of Buy Now, Pay Later in the U.S.,” Black Americans and Hispanic Americans experienced an increase of 17% and 13% respectively.

Alternative financial solutions like Buy Now Pay Later would help “relieve significant burdens on”. [an]Accenture identified individuals who are financially vulnerable.

Sokolin warned that BNPL, like any other credit option, can pose a problem for consumers. They may lose their ability to pay the bills and end up with a bad credit history. BNPL is also increasing in popularity due to fintech. This can lead to too easy credit access for some people.

He said that if borrowing becomes too simple or too lucrative with incentive programs to encourage people to take out loans, it will lead directly into the household’s financial ruin.

Mike Robinson
Mike covers the financial, utilities and biotechnology sectors for Street Register. He has been writing about investment and personal finance topics for almost 12 years. Mike has an MBA in Finance from Wake Forest University.