Scoop: Buy Now, Pay Later Services Soar During Holidays
Holiday season purchases using "Buy Now, Pay Later" plans surge by 34%: Afterpay increases in popularity
Gearing up for the holiday shopping frenzy, Buy Now, Pay Later (BNPL) services have witnessed a substantial surge in popularity. In a recent announcement, payments platform Afterpay reported a whopping 34% increase in in-store and online installment payment orders this holiday season.
Top categories among U.S. shoppers during the holiday season included clothing, footwear, cosmetics, home goods, and fitness items, according to the data. The top-selling items purchased using installment payments included clogs, weekender bags, trucker hats, pajamas, and shoes.
The enthusiasm for BNPL services was particularly pronounced among Gen Z shoppers. Afterpay's figures showed a 11% increase in Gen Z customers utilizing BNPL options between Black Friday and Cyber Monday, compared to the previous year. This growth trend also reflected a 30% year-over-year increase in online spending through the platform.
Zahir Khoja, Afterpay's general manager of North America, stated, "This holiday season, consumers were eager to bring a sense of normality back into their lives by shopping for gifts for themselves and their loved ones. We're delighted to partner with even more U.S. merchants this year and offer our convenient and flexible payment method, revitalizing both online and in-store spending and helping consumers budget before the New Year."
As the holiday shopping season unfolded, BNPL services have shown promising growth, with providers and retailers also expressing interest in offering these services to customers. Target recently introduced Affirm and Sezzle's installment payment options, while Mastercard plans to launch a BNPL option in the near future.
However, as the demand for BNPL services soars, concerns regarding consumer and provider risks have also emerged. Critics argue that the advantages of installment payments may not outweigh the potential risks for both consumers and providers.
In recent months, Fitch Ratings released a report warning about the risk of borrowers falling behind on their payments when facing financial hardships. Additionally, because providers often don't report customers to credit bureaus, they may not accurately gauge borrowers' debt levels, leaving consumers at risk of overextending their credit.
During a hearing in November, the House Financial Services Committee's Task Force on Financial Technology expressed concern about the potential impact of BNPL services on young people's credit scores and the risk of overloading them with debt.
While BNPL services can provide consumers with flexibility in their purchasing decisions, it is crucial for users to remain mindful of potential risks such as overspending, accumulating debt, and hidden fees. On the other hand, providers must strike a balance between managing provider risk, regulatory compliance, and maintaining a positive brand reputation as the popularity of BNPL services continues to surge.
Here's a summary of the primary consumer and provider risks associated with BNPL services:
| Risk Category | Consumers | Providers ||--------------|----------|----------|| Overspending/Debt | High risk of accumulating unmanageable debt | Increased risk of defaults and losses || Financial Penalties | Late fees, overdraft charges | Direct losses from unpaid balances || Hidden Costs | Fees, increased budget burdens | Reputation risk, regulatory scrutiny || Credit Risk Masking | Overextension, poor credit management | Misjudged risk, portfolio losses || Regulatory Issues | Limited protection, unclear rights | Need for compliance, reporting standards |
- The increased popularity of Buy Now, Pay Later (BNPL) services amid the pandemic has raised concerns about consumer risks, such as overspending, accumulating debt, and hidden fees.
- As BNPL services grow in the finance sector, technology companies are also exploring artificial intelligence and research to improve their offerings, aiming to make them more accessible and less risky for consumers.
- Amidst these developments, policymakers are scrutinizing the impact of BNPL on young people's credit scores and the potential for overloading them with debt, due to the wariness over the risks associated with these services.
- While BNPL services can provide fashion and business benefits to consumers, technology providers must strike a balance between managing provider risk, regulatory compliance, and maintaining a positive brand reputation as the demand for these services continues to surge.
- In the wake of the pandemic, the technology sector has played a crucial role in facilitating the growth of BNPL services, with artificial intelligence, research, and finance paving the way for a more seamless shopping experience and easier access to credit.
