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BNPL spending projected to hit $18.5 billion in Q4 2023

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71% of BNPL users also had credit card debt in 2023

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Most BNPL users make on-time payments, but credit scores

often

subprime

By Hannah Lang

Oct 10 (Reuters) - As Amazon's Prime Day kicked off the

holiday shopping season this week, U.S. consumers are expected

to spend a record $18.5 billion using buy now, pay later for

purchases in the last quarter of the year, according to

projections by data firm Adobe Analytics.

Buy now, pay later (BNPL) exploded in popularity as the

COVID-19 pandemic forced more shoppers online, driving $75

billion in online spending in 2023, up 14.3% from 2022,

according to Adobe.

BNPL providers like Affirm and Klarna boost

shoppers' purchasing power by lending them the money for

purchases, which they repay in installments spread over as many

as 36 months, although the most common products are

four-installment payment plans.

Because most BNPL providers do not report their loans to the

credit reporting agencies, comprehensive data on BNPL

delinquencies is scant. The Financial Technology Association,

which counts three BNPL lenders among its members, reports less

than a 2% delinquency rate among those companies compared to

nearly 9% for credit cards.

Still, 71% of BNPL users also had credit card debt in 2023,

according to the Federal Reserve Bank of Boston.

Afterpay -- which is owned by Block -- reported that

96% of customers paid all of their installments on time during

the fourth quarter of 2023, while Klarna reported that 96% of

its pay-in-four users in 2023 paid off their bills early or on

time.

For the three months ended Sept. 30, 2024, Affirm said 2.4% of

its loans were delinquent by more than 30 days.

Here are five charts illustrating how BNPL is used:

SHARE OF ONLINE SPENDING

Consumers spent more than $731.5 billion online from January

through September this year, with $57.6 billion of that coming

from BNPL purchases, according to Adobe Analytics. That's up

10.3% from the same period in 2023.

The record $18.5 billion in BNPL purchases Adobe is

predicting for the last quarter this year would be a

year-on-year increase of 11.4%.

ON-TIME PAYMENTS

Most BNPL users make their full payment on time, according

to the Federal Reserve Bank of Philadelphia, and fewer shoppers

were late on their payments between 2022 and 2023.

However, the Philadelphia Fed said that it was unclear if

shoppers appeared "less risky" because of changes in BNPL

companies' underwriting methods, or if there was a shift in the

pool of consumers who were attracted to BNPL from 2022 to

2023.

CREDIT SCORES

The U.S. Consumer Financial Protection Bureau in 2022 reported

that most BNPL users who also had revolving balances on at least

one credit card had credit scores that were subprime (between

580 and 619) or near prime (between 620 and 659).

Because many BNPL lenders do not furnish data to the credit

reporting agencies, consumer advocates have warned that BNPL

debt is a blind spot for regulators, other lenders and BNPL

lenders themselves.

In May, the CFPB issued an interpretive rule applying new

requirements for BNPL lenders, mandating that companies must

investigate consumer disputes, refund products that have been

returned and provide periodic billing statements. The companies

are not required to assess a consumer's ability to repay a loan.

AVERAGE MONTHLY PAYMENT

Fifty-eight percent of BNPL users this year reported having

an average monthly payment of $100 or less, according to The

Motley Fool, a research firm. In contrast, Experian reported

that the average monthly credit card payment users had in

February was $202.

Only 2% of BNPL users had an average monthly payment of more

than $1,000.

USES ACROSS GENERATIONS

For shoppers considered Generation X, Millennials and

Generation Z, or those under age 60, clothes were the most

popular BNPL purchases last year, per PYMNTS, a news provider

focused on payments, while more Baby Boomers used BNPL to

purchase furniture.

Groceries were also a popular BNPL purchase across

generations. The CFPB found that BNPL usage for everyday

purchases like groceries, gas and utilities was up 434% in 2022

from 2020 as consumers faced rising prices.