2021 BNPL Spending Topped $100 Billion

American consumers show no sign of slowing down their use of buy now, pay later platforms to make purchases. A recent Yahoo Money report cites data from Cornerstone Advisors showing U.S. consumers spent $100 billion via BNPL platforms in 2021. In 2020, year one of the pandemic that propelled BNPL, the figure was just $24 billion.

Cornerstone also projects BNPL volume could increase up to 15 times its current level by 2025.

BNPL is quite simply a way to pay for purchases — both online and in-store — in installments. The typical model is pay in four, where the buyer makes one initial payment at the time of purchase, followed by three equal installments until the purchase is completed. Most BNPL platforms are interest-free. But not all of them are. Most platforms do apply late fees.

As we’ve reported previously, this massive growth in the use of BNPL to make purchases brings with it costs that are coming into increasingly clear focus.

Recent surveys from Credit Karma and Lending Tree have shown that BNPL default rates are rising. This supports the underlying critique that BNPL, while presenting itself as a responsible credit option, actually encourages consumers to buy things they cannot afford.

The Yahoo story quotes a young marketer in New York named Caroline Hunt who found herself using BNPL to make one impulse purchase after another during the lockdown, only to wake up one day in a bit of a pickle.

“I kept treating myself to things,” the 26-year old told Yahoo! Money.

Eventually, she began piling up fees and her credit took a hit when she fell behind on payments. 

“They were threatening to send me into collections,” Hunt said.

Regulators, Credit Bureaus Move In

BNPL’s massive growth combined with growing concerns over its financial responsibility has drawn attention from both regulators and credit bureaus.

Most notably, in December, the U.S. Consumer Finance Protection Bureau opened a probe into BNPL. The probe’s stated objective is to examine BNPL’s impact on consumers.

“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately, too,” CFPB Director Rohit Chopra said in a statement announcing the regulatory inquiry.

Perhaps as significantly for consumers, the major credit bureaus are now paying much closer attention to BNPL. And to what its use says about an individual consumer’s creditworthiness.

A story today in American Banker magazine reported that Experian, TransUnion, and Equifax were working on ways to incorporate BNPL loans into their credit reports.

Attention from the credit bureaus was inevitable and isn’t necessarily bad news for consumers or the BNPL industry, however. First, it conveys some legitimacy to the lending model. And for consumers who use BNPL responsibly, it potentially adds another tool for consumers to use to improve their credit scores.

However, if default rates continue to rise, there will likely be a cascading impact on consumer credit scores. And this will likely generate more negative publicity about BNPL pushing unwitting (and mostly young) consumers unwittingly into financial distress.

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