Buy Now, Pay Later (BNPL) has emerged as a popular type of credit which may be less expensive than traditional credit cards. Today, it is very common for BNPL services to be made available at the point of sale, thus helping to ensure a shopping cart is not abandoned.
The Consumer Financial Protection Bureau (CFPB) has posted research on BNPL, claiming that over one-fifth of consumers with a credit record used BNPL loans in 2022, with most of those consumers having subprime or deep subprime credit scores.
The repot also claims that more than three-fifths of BNPL borrowers held multiple simultaneous BNPL loans at some point during the year, and one-third had loans from multiple providers.
The CFPB explains they launched a data collection initiative to better understand the BNPL market. The agency targeted several large BNPL providers including Affirm, Afterpay, Klarna, Paypal, Sezzle, and Zip.
The report states that, in 2022:
- More than one-fifth of consumers used BNPL: Among consumers with a credit record, 2 percent financed at least one purchase with a BNPL loan, up from 17.6 percent in 2021. About 20 percent of borrowers in 2022 were heavy users originating more than one BNPL loan on average each month, an increase from 18 percent in 2021. The average number of originations per borrower increased from 8.5 to 9.5.
- Most BNPL borrowers took out multiple simultaneous BNPL loans: Approximately 63 percent of borrowers originated multiple simultaneous loans at some point during the year, and 33 percent took out loans from multiple BNPL lenders.
- Nearly two-thirds of BNPL loans went to borrowers with lower credit scores: Among these applicants with subprime or deep subprime credit scores, BNPL lenders approved 78 percent of loans in 2022.
- BNPL borrowers were more likely to hold higher balances on other credit accounts: These borrowers held higher balances of other unsecured consumer debt, including personal loans, retail loans, student loans, credit cards, and subprime alternative financial services lenders. Before first-time BNPL use, consumers’ average credit card utilization rates increased, suggesting that less available credit card liquidity may encourage consumers to use BNPL.
- Younger borrowers held more BNPL debt as a percentage of their total consumer debt: Among borrowers ages 18-24, BNPL purchases made up 28 percent of total unsecured consumer debt compared to an average of 17 percent among borrowers of all age groups, during the months in which they borrowed.
Of course, any data on BNPL must be compared with alternatives such as credit cards or other types of lending.
