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Credit for the less creditworthy?
Insider’sreport An August 2023 survey by Motley Fool revealed that 35

on payments percent of Americans had used BNPL during the previous
12 months. While that's down from 56 percent in 2021, the
research suggested BNPL has appeal to at least some folks
who probably shouldn't be making these commitments.
Will that be cash, Nearly half the BNPL users surveyed (48 percent) admitted
that they are turning to these plans to finance purchases
that wouldn't otherwise fit their budgets. And it shows:
card or pay later? better than one in four (26 percent) BNPL customers admit
to having missed or made a payment late.

By Patti Murphy Motley Fool found BNPL is especially popular with younger
Americans. The website's researchers found 50 percent of
he old checkout query "will that be cash or card," adults between the ages of 25 and 44 were using BNPL,
may be ready for an update to include buy now compared to just 19 percent of those over the age of 54. I get
pay later? It's really not far-fetched. Buy now, it: the older one is the more rough economic times there are
T pay later (BNPL) has been gaining in recent to remember; it makes older consumers think twice before
years, and this holiday season it's been on fire. overextending themselves with a new credit product.

Adobe Analytics reported that online retailers rang up $7.3 As I explained to my colleague a few years ago, proponents
billion in BNPL transactions between Nov. 1 and Nov. 26. of BNPL like to point out that it's a great credit product
In October, Adobe predicted online merchants would ring for underbanked consumers—those, for example, who may
up a total of $17 billion in BNPL transactions this holiday have an account at a financial institution but have thin or
season. nonexistent credit files and can't obtain a credit card with a
decent limit. This could be a problem.
I'm not convinced the $17 billion prediction will be met. But Appealing repayment terms
then, $7.3 billion in a single month is big, although maybe
not that much of a surprise given the current interest rate That's because many of these folks are considered
environment. "financially fragile," to borrow a phrase from a recent study
Many of the big-name BNPL providers offer consumers the by the Federal Reserve Bank of New York. The New York
option to pay off purchases, at zero interest, and pay down Fed's researchers found a "disproportionate" number of
the balance every two weeks. BNPL loans are going to these financially fragile consumers.

During a presentation on BNPL a few years ago, a colleague Morning Consult has a similar take on the trend. Its
leaned over and said to me, "I don't get it." research suggests the overwhelming majority of BNPL
customers (69 percent) are Gen Z adults and Millennials,
To which I explained, "It's going to be popular with folks and most are unbanked (20 percent) or underbanked (47
who have thin or non-existent credit scores. It will give percent). These individuals tend to be mid- to high-income
them the chance to spread out payments without blowing individuals, Morning Consult's research shows, but they
their weekly budgets." also tend to carry more debt than the general population.
"The debt habits of BNPL users should serve as a warning
She then asked, "But aren't they going to find themselves sign to providers about their customers' financial health,"
overextended and unable to make payments on time?" the market research firm wrote in a recent report.

I replied, "Well, yes, but then that's one way these companies Findings of a recent survey by J.D. Power drive home the
make money." I answered quickly, not thinking through point. Thirty-two percent of consumers who were at risk of
the potential problems. being unable to cover their basic financial needs had used
BNPL in the previous 90 days, the firm said.
(Another way these companies make money, of course, is
by charging merchants a percentage of the ticket. Leading However, these consumers are not alone in using BNPL at
BNPL provider Affirm, for example, charges merchants the POS. In a report on its research, J.D. Power said nearly
between 4.29 percent and 8 percent, upfront. I suspect a quarter (23 percent) of well-healed consumers (those who
many of these are the same merchants who balk at paying said they had no difficulties covering their basic financial
2 percent to 4 percent per transaction in card interchange. needs) also had used BNPL in the previous 90 days. "They
But that's a different discussion for a different day.) appear to use BNPL to purchase out of preference rather
than necessity," the firm wrote.

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