Earlier this year, PYMNTS Intelligence detailed the ways in which pay later plans — and buy now, pay later (BNPL) offerings in particular — have been finding wide use as a way to manage day-to-day, essential expenses.
In the Pay Later Report, we found that within the paycheck-to-paycheck segment — which represents about two-thirds of the population — 75% had been using those plans, across all income levels. The data shows that paying over time holds particular appeal among constrained consumers with difficulty paying bills. Consumers with those pressures were more than four times more likely to choose these plans than households not facing those pressures.
“The desire for easy, budget-friendly payment options is impacting how consumers approach large and small purchases. Many consumers, regardless of income level, used installment plans to streamline spending and preserve their cash reserves,” we’ve noted.
Among those frequently facing cash shortfalls, 8.9% reported using BNPL. This is more than three times the 2.5% of consumers without such issues who said the same. The data gleaned from more than 2,200 consumers showed that cash flow-compromised consumers are 3.5 times more likely to use BNPL to make purchases than less constrained peers.
Cash flow shortages are widespread, given the fact that 22% of consumers say they sometimes experience cash flow shortages, and 13% report they experience cash flow shortages frequently. Millennials are among the most impacted groups, with 17% experiencing frequent cash shortfalls. Among consumers earning less than $50,000 annually, 18% reported frequent cash flow shortage.
This month, a separate PYMNTS Intelligence report, the Pay Later Revolution, indicated that the pressures have a double edge to them: Financial pressures spur consumers to use BNPL, and continued financial pressures wind up pushing a significant percentage of those loans into late-pay status.
PYMNTS Intelligence found that as of mid-to-late January, nearly 30% of all BNPL loans were past due, across the 2,330 individuals surveyed, though better than the 33% rate logged in in November.
The Fed Weighs In
PYMNTS Intelligence’s findings were underscored by a Thursday (May 29) posting and report from the Kansas Federal Reserve titled “Financial Constraints Among Buy Now, Pay Later Users.”
In that study, researchers wrote that “whether BNPL services improve or harm a consumer’s financial situation is an open question. BNPL services may help assist consumers in managing financial constraints … especially to consumers who may not qualify for traditional credit products. However, the smaller, interest-free installments may also lead some consumers to perceive purchases as more affordable than they really are, increasing the risk of overspending, debt accumulation, and even default.”
The Fed added that adoption rates for BNPL are higher for millennial and Generation Z consumers “as well as for financially vulnerable or distressed consumers — for example, those with low credit scores, those who were recently rejected on a credit application, and those who are racial or ethnic minorities.”
Across 11 financial constraint “indicators” defined by the Fed, such as being denied credit; not having savings or having an inability to cover emergency expenses, “BNPL users are significantly more likely to face financial constraints than BNPL nonusers … Moreover, nearly half of BNPL users have four or more indicators of financial constraints, while 80 percent of nonusers have three indicators or fewer … We find a high correlation between consumers who make late payments on BNPL loans and those who have a higher number of financial constraint indicators.”
But the central bank research also had this to say: “However, many BNPL users, especially those without late payments, may use BNPL to help ease their financial constraints; if consumers use BNPL service as a substitute for alternative credit services or credit cards, they can reduce or avoid high costs or interest charges.”
