The buy now, pay later capability now offered by myriad providers is sweeping the country, but may include a few drawbacks that could hinder future growth, according to a report issued Monday.
Research for the report, which included a survey early this year of some 1,500 U.S. consumers, revealed that 39% have tried BNPL. Among these users, some 55% are likely to spend more than they do with other payment methods. Other positives so far are that most users trust BNPL services and intend to keep relying on them. At the same time, though, at least some users appear to be “less confident” regarding the “motivations” of the BNPL providers, notes a summary of the report, entitled “Buy Now, Pay Later: An Analysis of Key Trends and Consumer Attitudes,” released by The Strawhecker Group, an Omaha, Neb.-based consulting and research firm.
“We found that one in five consumers believe their buy now, pay later service would take advantage of them,” said Jared Drieling, senior director of market intelligence and insights at Strawhecker, in a statement. “Despite the growing trend, most consumers stated a credit or debit card issued through their bank was still the number-one most reliable payment method.”
The basic service on which BNPL is based—layaway plans—has been around for decades, but BNPL puts a modern gloss on the idea by allowing consumers to receive their merchandise immediately. They then pay off the purchase in a few interest-free installments over a short span of time.
The popularity of BNPL has exploded during the pandemic as consumers increasingly turn to e-commerce and search out ways to stretch strapped budgets. A report released last month by CBInsights, a New York City-based research firm, estimated total U.S. BNPL volume could reach $1 trillion by 2025, some 10 to 15 times the current level. Providers range from specialists like Affirm Inc. and Afterpay Ltd. to more established players like PayPal Holdings Inc., Square Inc., and Klarna Bank AB.
But the Strawhecker report finds some consumers entertaining conflicting opinions of BNPL. Some 85% say they plan to continue using the service, according to the results, and 47% use it to avoid credit card interest. Yet most also indicated a credit card or debit card from their bank is “the #1 most reliable payment method,” according to the report summary.
“Further, a thematic analysis of respondents who do not use BNPL, as well as their reasons for intentionally avoiding these services, showed that consumers can experience psychological discomfort, a lack of familiarity, and financial hardship preventing them from pursuing Buy Now, Pay Later options,” the summary continues.
Also, as the CBInsights report indicated, conventional card issuers and networks are increasingly viewing BNPL as a competitive threat—Capital One even barred its credit cards from being used for POS lending transactions—and some are reacting with rival capabilities. The big move from Visa in this market came in 2019, with the announcement of installment-payment APIs. The APIs became available early last year. Also in 2019, Mastercard acquired Vyze Inc., a point-of-sale installment lender in Austin, Texas.
“The future of Buy Now, Pay Later usage suggests an even more nuanced picture, as the retention rates reported by some companies are astonishingly high,” says Drieling in a statement. “For example, Afterpay reported 91% of sales during the first quarter of 2021 were from repeat customers.”