The Federal Reserve Bank of New York has published a write-up on Buy Now Pay Later (BNPL) services explaining reviewing which consumers select this payment option.
Economists and analysts Felix Aidala, Daniel Mangrum, and Wilbert van der Klaauw claim that “more-fragile households” use these services more frequently and make smaller purchases that they may otherwise not be able to afford.
As part of the Fed’s October 2023 Survey of Consumer Expectations (SCE) Credit Access Survey, they added new questions regarding BNPL. Out of 1000 households, 200 reported using BNPL. Financially fragiel were defined as those having a credit score below 620 and stable consumers were everyone else.The survey states that 72% of financially stable users and 89% of financially fragile made multiple BNPL purchases over the past twelve months.
Some bullets on the BNPL questions:
- Financially fragile BNPL users, about 60% have used the product five or more times in the past year
- 68% of financially stable BNPL users have taken advantage of the product at least twice in the past year, just 23% and 14% have used it five or more times and ten or more times
- 62 percent of financially fragile users have a mean purchase price under $250, compared to about 44 percent of the financially stable
Both stable and non-financially stable groups like the fact that payments can be spread out over time, typically without any interest payments.
Additionally, there is friction for the first use, but once BNPL is used, consumers use it again. The report does not really draw a distinction as to whether or not BNPL is good for consumers but providers frequently point to the fact interest rates are lower (or zero) for BNPL credit as opposed to credit cards which tend to charge very high rates.
You may access the BNPL report here.