Buy-now-pay-later (BNPL), which gained popularity during the pandemic, appears to be taking off this holiday season, with Adobe Analytics projecting $18.5 billion in purchases in the final quarter of 2024.
BNPL, which takes its cue from the layaway plans of yesteryear without the wait until the item is paid off, gained popularity during the pandemic. Rates involved with BNPL are often far lower than the 22.63% average credit cards are running.
Adobe reported online BNPL purchases through companies like PayPal, Affirm and Klarna gained 14.3% from 2022 to 2023 to $75 billion. The total is expected to grow to $80.77 billion by the end of the year.
Retailers have embraced BNPL because the charges are often lower than credit card swipe fees. Fully 5% of purchases involved BNPL in 2022. That percentage is expected to grow to 7% by 2026, according to Demandsage.com.
“As online and mobile shopping has continued to grow, retailers have noticed that offering BNPL options can result in increased sales, basket size and repeat customers,” Peter Ramer, consumer products senior analyst at RSM US, told The Food Institute.
“By presenting a larger purchase as several smaller payments spread over time, customers can overcome their hesitation, leading to higher conversion rates.”
The Consumer Financial Protection Bureau found BNPL is used mostly by those earning $20,000 to $50,000 annually and those with consistently low credit scores. Most BNPL firms, however, do not provide data to credit bureaus, making it tougher to track usage and repayment practices.
“A survey by the Federal Reserve System on the economic well-being of U.S. households in 2022 showed that 56% of BNPL users said they chose that method because it was the only way they could afford the purchase,” Ramer added.
“It is important that the risks of BNPL to consumers be monitored, like any other method of payment, and that the appropriate amount of regulation be applied to protect the consumer and the overall financial system.”
Statista Consumer Insights reported 41% of adult consumers used BNPL plans in the last year and an additional 22% said they might consider doing so – especially if there are no additional charges.
Consumer finance expert Austin Kilgore, an analyst with the Achieve Center for Consumer Insights, said BNPL often is the credit option of last resort, benefiting “consumers who have poor credit histories, are near the limit of their credit cards, or who are otherwise already over-extended financially. This signals that BNPL is a credit product that can cause harm to consumers if not managed responsibly.
“We also know that 36% of consumers are saying it’s very difficult or difficult for them to pay their recurring debts on time – and that almost 70% of them say it’s a challenge because they don’t make enough money to cover their spending. Nearly six of 10 consumers are carrying a credit card balance to cover the cost of essential expenses.”
Harvard Business Review noted BNPL increases consumer spending by as much as 26%.
“BNPL’s ability to divide the cost of purchases into smaller installments gives consumers a sense of greater control over their budget. Installment payments feel more manageable than larger payments, even when the larger payments are delayed in time,” HBR said.
Also, “the smaller amounts of installment payments make consumers perceive costs as more trivial. Together, these factors lead consumers to feel less financially constrained, encouraging them to add more items to their baskets.”
The Food Institute Podcast
Is it possible to balance a legacy brand and innovative ideas for a food company? Bibie Wu, chief communications and technical development officer with Del Monte, shares how her company respects its past while looking to the future, and how her dual roles in marketing and product development inform each other and improve the company.
