The deep dive: BNPL in the US

By Puja Sharma

The deep dive’ is our bi-weekly exploration of a relevant topic, hot trend or new product. For Prime subscribers only.

Online shopping is increasing and new payment options are available to consumers. US-based residents are conserving cash and seeking alternative methods of borrowing money as a result of income loss and uncertain finances. A survey conducted by the Ascent in July 2020 surveyed 2,000 Americans about their Buy Now, Pay Later (BNPL) habits. Almost 50% more growth was seen in less than a year when we followed up with another survey in March 2021.

How does it work?

Apps that let you BNPL allow you to make purchases online and pay them off over time in weekly, bi-weekly, or monthly installments. Apps like this sometimes charge interest, much like credit cards, but they may also offer interest-free periods. One can avoid paying interest on a balance if you pay it off before the period ends.

Most BNPL loans have high-interest rates.  One can find them at the checkout pages of many online retailers. A typical BNPL interest-free offer might break a purchase into four equal installments, the first one paid at checkout and the other three paid every two weeks.

Most BNPL applications don’t do a hard draw on your credit report, and a significant number of them don’t investigate time installments to the credit departments. Accordingly, contingent upon the application, as long as you make every one of your installments on schedule, it won’t affect your FICO rating or even appear on your credit report.

The absence of chance to assemble credit may be a drawback for some, however, others, particularly people with low-ranking credit, will see the value in BNPL applications’ more tolerant credit endorsement.

Who is under the radar?

BNPL was used by 37.65% of American adults in July of 2020. In the years since then, that number has risen dramatically, with 55.80% of Americans now having used one of these services. This is an increase of 48% in less than a year.

Significant retailers, like Amazon and Walmart, and Affirm, which gives BNPL to serve both the companies, have pushed their BNPL choices. Similar to the loan it replaces, shoppers see BNPL as a lower hazard than conventional credit techniques. The choice is likewise alluring to more youthful purchasers who will be unable to get a lot of traditional credit.

It is clear that Buy Now, Pay Later is a growing trend in the US with a near-50% increase in the number of survey respondents.  As is the fact that 45% of users used BNPL to make purchases they couldn’t afford. Bill Me Later/PayPal Credit, Afterpay, Affirm, Klarna, and FuturePay are some of the most popular BNPL apps.

In particular, in the US, over 40% of consumers are interested in bank-issued BNPL plans and the interest is higher among younger generations. Surprisingly, 70% of current BNPL users are interested in such plans over a FinTech. Just 7% of BNPL users had a lower preference for such a product from banks compared to FinTech.

Why does it matter now?

The COVID-19 pandemic certainly contributed to the rise of BNPL. With 64% of BNPL users saying they have used the service more since the pandemic started. As over half of non-users say they’re likely to use buy now, pay later within the next year, it’s almost certain that this explosive growth will continue. But almost a third of users have made a late payment and many expect to do so in the next year is concerning.

BNPL’s growth could mean more noteworthy benefits for organizations over the holiday season, as it permits buyers who couldn’t in any case get to credit to make big buys. BNPL may likewise give those shoppers a more reasonable credit choice through planned installments. Spending during the 2021 Christmas season will likewise be impacted by extraordinary variables connected with the 2020 financial slump, as well as by pandemic limitations that got people far from their friends and family last year.