Millennials’ financial well-being might be a bit shaky — or soon will be.
The pause on student loan payments is set to end, and the much-anticipated loan forgiveness floated by the President Joe Biden administration was struck down by the Supreme Court.
That means that come this fall, once those payments resume, millennials with student loans might lose 6.5% of their spending power, according to PYMNTS research.
Other PYMNTS research has noted that through the last several months, younger consumers (millennials included) have shifted more of their spending onto cards, indicating that the burden of servicing debt is just going to be that much harder.
Sezzle CEO Charlie Youakim told Karen Webster that there may be some pullback on spending over the near term. But buy now, pay later (BNPL) will likely see a wider embrace as a favored payment option as consumers adjust to their new financial realities.
“We’ve seen this since the start,” Youakim said.
It’s a trend that all BNPL providers have experienced first-hand with their customers.
“Budgeting is top of mind … and BNPL is a budgeting tool,” he said.
Joint research conducted by PYMNTS and Sezzle showed that the majority of consumers don’t see BNPL as a credit product. They see BNPL as a way to manage cash flow — and that’s how they want to use that payment option. It’s a desire that cuts across age demographics and income levels.
At a high level, the same principles apply no matter if a consumer’s mulling BNPL or taking out a credit card for the very first time. We’re all conscious of the time value of money (i.e., there’s a benefit to be gleaned from paying for something tomorrow and not today).
Merchants and providers should take pains to market BNPL as a way to finance a purchase without taking on too much debt — even predatory debt — that ultimately proves harmful to one’s financial position, Youakim said. As many as 15% of millennials said they might take on more expensive options to pay for what they need if BNPL is not on offer, which could have negative repercussions on their financial standing down the line.
For forward-thinking enterprises, if 40% of BNPL users said they would not make a purchase without that option on hand, or would opt to make a less-expensive purchase, then merchants must cater to those expectations today.
“For these customers, it becomes essential that some sort of financing is available, but [with BNPL], they’re diverting a flow of funds away from high-cost financing products to a very low-cost financing product,” he said. “It’s a big win for consumers.”
As Youakim recounted, the biweekly spacing of payments can be an effective way to budget, especially as those payments line up with the (traditional) biweekly pay schedule, matching cash inflows with cash outflows.
BNPL has attracted younger customers who tend to be less affluent and may be in the subprime to prime demographics, perhaps living paycheck to paycheck or taking on gig work, he said. They’re perhaps less enthusiastic about taking on credit card debt and high interest rates.
BNPL has an inherent advantage in the fact that missing a payment does not necessarily lead to an adverse credit event, as only a few providers (Sezzle among them) report payment histories to credit bureaus. But there’s a desire to keep making timely payments as the convenience of that cash flow “matching” is evidenced by the fact that Sezzle’s top 10% of customers use BNPL as many as 60 times annually Youakim said.
“They don’t want to lose access, and they want to use it on the next purchase, and they can’t if they’re not current on payments,” he said. “So that’s why we rise to the ‘top’ of the payment stack.”
The specter of regulatory action continues to rear its head, but Youakim remained sanguine that BNPL providers will continue to thrive even amid enhanced scrutiny because they’re already embracing best practices that protect the BNPL ecosystem.
In the United Kingdom, for example, recently implemented (and now to-be scrapped) regulation mandates that BNPL providers are liable, jointly with the merchant for the contract with the consumer. But, as Youakim noted, here in the United States, providers are already working with merchants to provide transparency on BNPL contract terms and consumers’ obligations.
“There’s a reason consumers are flocking to BNPL, and it’s because it’s better for them financially — and I think the regulators will find the same thing,” he said.
In the meantime, BNPL is poised to change the financial services landscape overall, as banks eye BNPL as a way to compete for consumer spend (including with interest-bearing installments).
“Whether you have customers who are using BNPL because they need to or because they are using it for budgeting, there are multiple ways to use it, and that’s why BNPL is so successful and why it’s here to stay,” Youakim told Webster.