BNPL now just another payment option

A new report from the Federal Reserve Bank of New York shows that many Americans are embracing buy now, pay later (BNPL) as a payment option on par with "will that be cash or card?" This is especially true among the financially fragile, New York Fed researchers found.

A general lack of regulation and other factors mean data pertaining to BNPL and households that use it are scarce. To overcome this, the New York Fed added special questions to a monthly survey it fields on consumer credit expectations. In all, 1,000 households responded to the questions, with about 200 reporting BNPL use.

The study defined "financially fragile" as a household led by someone with a credit score below 620, having had a credit application declined within the past year, or having been delinquent on a loan for at least 30 days within the past year. All others were deemed financially stable.

Despite the high rate of use among financially fragile Americans, the New York Fed researchers said they did not find household income to be "a primary driver" of BNPL purchases. The reasons for using BNPL vary wildly and include deferred interest, ease of access, not wanting to add to credit card balances (those with cards), or because they simply don't have credit cards (financially fragile).

Huge growth potential

The biggest barrier to adoption of BNPL as a payment method is first use, the researchers found. Once consumers try it, they tend to use it again. "With about 80 percent of households not using BNPL in the past year, there may still be a great deal of room for increased adoption of the product," the researchers wrote.

Here are additional finding revealed in a report on the research, titled How and why do consumers user buy now, pay later?

• Among the financially fragile, BNPL use for small purchases (under $250) is common.
• There's a misunderstanding among many (at both ends of the income spectrum) that BNPL will contribute to their credit ratings; BNPL companies do not communicate with credit reporting agencies, the authors noted.
• Across all income groups it is rare for someone to use BNPL just once; about 72 percent of financially stable and 80 percent of financially fragile consumers had made multiple purchases using BNPL over the past 12 months.
• The "financially fragile are disproportionately likely to use BNPL at higher frequencies and appear to have embraced BNPL as a regular payment option. For example, financially fragile consumers are about three-times more likely to have taken five or more BNPL loans than those considered financially healthy.
• At the top end, purchase totals skew higher among financially secure buyers; the highest average BNPL purchases made by this group ranged from $1,750 to $2,000.

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