Buy Now, Pay Later (BNPL) services in the United States (U.S.) have only grown after becoming popular when the pandemic started. Consumers flocked to using BNPL to finance their purchases with the transition of stay-at-home measures. A Qualtrics survey by Credit Karma has indicated a few exciting finds, including how “44% of Americans have used buy now, pay later products to acquire an item they needed” (Credit Karma, 2021). 

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According to PYMNTS’ surveys, consumers using BNPL to buy products and services in the last year jumped to 28.5 million, growing an impressive 85 per cent from March 2020, which showed an already strong consumer count of 15.4 million. (PYMNTS, 2021)

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This surge of BNPL indicates that despite the convenience this payment method provides, BNPL is considered an excellent option only for those who can afford the debt it incurs and make regular on-time payments. Consumers who cannot fulfil these two crucial criteria suffer unfortunate consequences, including declines in their credit score, affecting their future loan eligibility. In addition, the younger generations, Gen Z and Millennials, are more likely to incur missed payments than the older generations, Gen X and Boomers(+), which makes sense as the younger generations’ current financial status may not fulfil the two criteria as well. 

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Despite this, younger generations have leaned into using BNPL services to finance their purchases. “It’s gaining ground online and off and is enjoying strong momentum, especially with the younger demographic...and it’s apparent that consumers like a lot of things about BNPL no matter what their financial status might be.” (PYMNTS, 2021).

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The Cart Items

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Consumers use BNPL for a wide variety of purchases, and according to Credit Karma, the top 3 purchases were made for Home and Furniture goods (42%), Electronics (30%) and Apparel (24%).

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Most purchases for Apparel (24%) were commonly made by Gen Z, “with 40% reporting they’ve used BNPL products to purchase apparel, including clothing and shoes.” (Credit Karma, 2021). 

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The Generations

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With consumers purchasing products using BNPL, it is also good to distinguish the cost of purchases made by generations.

Gen Z’s made the lowest-cost purchases of $250 and less, with the majority (76%) of them using BNPL services for expenses within this range. 

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Millennials and Gen X made middle range purchases. The majority (69%) of Millennials made purchases of $31 to $500, while the majority (63%) of Gen X purchased $51 to $1,000. 

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High-cost purchases of over $3,000 were more common among Gen X  (11%) and Boomers(+) (17%) compared to Millennials (4%) and Gen Z (2%). Most Boomers(+) (56%) made purchases $501 and over.

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The Motivations 

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With various purchases, different Cart items and generation differences, it is essential to understand the various key motivations and reasons behind making such purchases. 

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According to Credit Karma, the ease and convenience of BNPL products drive the use and returning use of this payment method. PYMNTS’ survey of Sezzle users in April-May 2021 elaborates other motivations, with the top 3 factors being allowing payment to spread out over time (55.6%), ease of use again (55%) and helping to budget monthly expenses (38.9%).

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However, other factors to note that have not been mentioned revolve around the security and affordability of BNPL services on reducing fraud risks and being a compelling payment option due to the lack of fee, respectively.

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“A key differentiator for a successful BNPL will be the institution’s ability to do advanced credit analytics and control defaults. Fintech companies focus on the integration of multiple data sources in the ecosystem along with an advanced risk assessment engine and the use of machine learning and artificial intelligence (AI) algorithms.”
Peter Barcak, Founder and CEO at credolab

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Conclusion

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In the U.S., BNPL purchases finance a wide variety of products and the younger generations. Specifically, Gen Z makes up the purchases for Apparel as compared to other generations. Different generations have different purchasing power with lowest cost purchases made by younger generations, Gen Z and Millennials, and higher cost purchases made by older generations, Gen X and Boomers(+), where Boomers(+) make up most purchases of over $3000. The reasons behind this surge in BNPL vary, and the most significant motivating factor behind using BNPL services as commonly identified in Credit Karma and PYMNTS surveys is its ease of use.

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