Buy Now, Pay Later: Implications for Financial Health

• Context
• The study
• Key findings
• Points to consider

Context

Buy now, pay later (BNPL) is a retail payment option that enables consumers to split a purchase into smaller instalments, with the first instalment typically due at checkout. Shoppers generally are promised no interest or fees if payments are made on time, and they can apply for the loan through a quick online process. Because there are several types of BNPL and many products are similar to other existing types of deferred payment product, it has been challenging to define and measure the market. It was important to conduct this study because the BNPL landscape is rapidly changing, and growth in use has been exponential, without there being an understanding of BNPLs implications on consumer financial health

The study

The Financial Health Network is a US based cross-sector movement which aims “to create a world where everyone can thrive financially.” The research was part of the Financial Health Network’s FinHealth Spend survey, which was fielded November 1-23, 2021 to a nationally representative, probability-based internet panel constructed via address-based sampling. The survey asked questions at a household level about use of various financial products and services, including BNPL. The panel collected 5,033 responses, which were weighted to reach a nationally representative sample with respect to gender, race/ethnicity, education, age, and census region.

Key findings

• Younger and less financially healthy households are more likely to use BNPL: 20% of respondents 18-25 reported that they had used a BNPL service in the last 12 months, compared with 16% of respondents 26-35 and only 13% of respondents 36-49. (p<0.05)
• Although BNPL services are in the early adoption phase evidence suggests that some households are already using them repeatedly: almost half of BNPL users (46%) have made 3 or more purchases with the service.
• While BNPL can act as a stand-in for credit or debit card purchases, in other cases BNPL may have triggered additional purchases: nearly one-third of users (30%) report increased spending.
• BNPL can lead to financial hardship for vulnerable users: while few users have difficulty making payments, nearly one-quarter of financially vulnerable users report challenges.
• Overall, BNPLs true impact remains to be seen

Points to consider

• Methodological limitations: BNPL is relatively new to the market, so this research is a snapshot of the current situation which is likely to change as consumers explore and become familiar with these types of payment option. The picture will become clearer as usage continues to grow and further longitudinal research can be conducted.
• Relevance: This is a highly relevant topic given the fast growth of BNPL and the need for evidence on the impact on users.
• Generalisability/ transferability: This research is US based but these initial findings are likely to be important for any market where BNPL is available.
• Applicability: This research is applicable to with an interest in issues affecting financially vulnerable people, as well as government, regulators, policy makers, financial institutions and support agencies. The research is also likely to be of interest to retail providers who offer or are considering BNPL payment terms.