Who do you think the typical buy now, pay later borrower is? Does a modern-day Carrie Bradshaw
spring to mind, a 30-something woman splurging on the perfect pair of shoes?
While early use cases were for shoes and beauty products, a more mature view of buy now, pay later (BNPL) takes in families' needs to gain access to credit and smooth cash flow. Such users are more likely to use BNPL for essentials, not frills.
Let's examine our notions about who uses BNPL and for what, using recent survey data:
- The New York Fed, using data from the Survey of Consumer Expectations, found that use of BNPL is related to household financial stability. "More-fragile households tend to use the service to make frequent, relatively small, purchases that they might have trouble affording otherwise. In contrast, financially stable households tend to not use BNPL as frequently and are more likely to emphasize that BNPL allows them to avoid paying interest on credit-finance purchases."
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A Philadelphia Fed survey finds that users of BNPL "appear to have more challenging financial lives, characterized by more disruptions and the use of more financial coping strategies." Disruptions include lost access to government benefits, other lost income, and moving or otherwise increased housing costs. Coping strategies include working more, borrowing more, or reducing savings or debt repayments. Users reported more frequent concerns about making ends meet.
- The Boston Fed, using data from the Survey and Diary of Consumer Payment Choice, said BNPL users are significantly more likely to revolve on their credit cards. In 2023, 7 in 10 users revolved credit card debt, compared to 4 in 10 nonusers.
- The Survey of Households Economics and Decisionmaking, like other data sources, found differences by race and ethnicity in the use of BNPL, which was "more common among low and middle-income adults, Black and Hispanic adults, and women." More than half of these BNPL users said it was the only way they could afford their purchase.
What does this data tell us? My view: that BNPL has become a mainstream credit product that some families use to get by from day to day. For some, BNPL substitutes for credit cards or other unsecured loans.
Identifying the similarity to "credit cards" as defined under the Truth in Lending Act, the Consumer Financial Protection Bureau announced in May that BNPL lenders will be classified as credit card providers, which will allow consumers to dispute charges and demand refunds from lenders after returning products purchased with a BNPL loan. Comments on the interpretive rule are due by August 1.
More on BNPL: In more than half a dozen blog posts since 2021, Take on Payments has reported on BNPL from many perspectives: merchants, consumers, regulators, and BNPL lenders. We've covered its association with an increased propensity to overdraft, its meteoric growth, the appealing user interface, risks of overextension, the evolution of the business model.
By Claire Greene, center director, Payments Forum in the Retail Payments Risk Forum at the Atlanta Fed