Banking, Payments Intelligence Report Reveals BNPL Usage Continues to Grow

Buy Now Pay Later (BNPL) usage continues to grow, but “not all these payment plans are experiencing the same level of customer engagement,” according to an update shared with CI.

By the end of 2021, shoppers had “spent more than $20 billion using BNPL, and, since then, BNPL has been dubbed one of the hottest consumer trends in the world, projected to generate up to $680 billion in transaction volume worldwide by 2025.”

This, of course, has “spurred legions of banks, fintechs, retailers and e-commerce platforms to get in on the action.”

Interestingly though, according to consumers surveyed by J.D. Power, “engagement is primarily happening at the point of sale.”

Approach at Checkout

According to our data, “the total percentage of consumers with an active BNPL account has increased to 22% in January 2023 from 18% in October 2022 and 14% in July 2021.”

This is rapid growth “that merits the attention lenders are giving to the space, and the key to scaling a BNPL solution seems to be promoting it at the point of sale.”

Overall, 29% of customers said “they first became interested in a BNPL service because it was offered as an option at checkout.” Respondents also “cite friends and family recommendations (16%) and social media (14%) as other factors that piqued their interest in BNPL.”

Card Issuers Join the Fray

The success of BNPL offers “has not gone unnoticed by credit card issuers, and some are competing directly with BNPL providers.”

Issuers are doing this is “by either allowing cardholders to convert balances on card purchases to fixed, monthly payments for a fee, or offering a fixed APR that is lower than the current rate on their card balances.” That’s often attractive “for cardholders since they are already familiar with the card issuer and their terms.”

That advantage, though, “only goes so far.” If card-based BNPL payment plans “aren’t top of mind in the precious moments when cardholders are paying for their purchase, those cardholders may be more likely to try a competitive BNPL solution.”

Knowing the BNPL Customer

Financial institutions and fintech companies alike “have recognized the steady upward trajectory of this category and know there is great potential in the space.”

But as these companies jockey for position in the market, they’ll need “to understand each customer’s decision-making process around BNPL.”

This is unfamiliar territory “for credit card issuers, who largely compete for new customers through affiliates, direct mail and cross-sell activities – most of which are disconnected from the point of sale decision.”

Now, as the point of sale becomes the primary battle ground “for BNPL customers, issuers need to shift their thinking from traditional card acquisition strategies.”

As noted in the report:

“By gaining more insight into the details of the customer journey, credit card issuers looking to compete with BNPL providers should build cardholder awareness of their own payment plans so that they aren’t tempted to try other BNPL solutions at the moment of purchase. As BNPL gains more social acceptance, these customer behaviors could change, which is why providers will have to stay diligent on tracking these trends as they evolve.”

This Banking and Payments Intelligence Report is “based on data from the JD Power U.S. Retail Banking Satisfaction Study, which is a yearly study that includes more than 20,000 responses annually.”

It was “authored by John Cabell, managing director of payments intelligence at J.D. Power.”

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