New data from eMarketer confirms what proponents of the buy now, pay later financing model have been telling us for years. U.S. adoption of the popular pay-in-four plans offered by companies like Klarna and Afterpay is dominated by GenZ and Millennial consumers. However, the same data show growing GenX and Boomer adoption as the financing option’s awareness and popularity grows.
According eMarketer’s first-ever survey focused on consumer BNPL adoption, 45 million U.S. consumers over age 14 will use a BNPL service this year. This represents an 81.2% jump over 2020.
In 2018, 80% of BNPL users were GeZ’s and Millennials. This year that number will drop to 73.2%. So usage is spreading across generations. But the model remains dominated by younger consumers.
eMarketer forecasts that by 2025 about 30% of BNPL users will be Gen X and Boomers. As eMarketer notes, BNPL platforms are evolving from deals with youth-oriented retailers to working with older-demo brands like Macy’s. The report cites Klarna’s recent deal with the big department store chain.
We’re written extensively about BNPL and its unique appeal to younger consumers. So it’s helpful to see independent data that confirms the thesis.
Regardless of which generation uses BNPL, the space is undeniably hot. Major players like Klarna have raised billions. And Apple recently joined the party with its own Apple Pay Later offering.
The Debit Economy
An aversion to debt sits at the heart of BNPL’s appeal to younger consumers. Afterpay founder Nick Molnar refers to this as a “debit economy.” There are various theories on why younger consumers are more averse to debt. Part of it may be a reaction to heavy student loan debt. It may be a sense of frugality brought on by incomes not keeping pace with the cost of a comfortable life. it may be a reaction to their parents’ debt-fueled lifestyles.
There are several reasons why younger consumers prefer BNPL to conventional credit cards or paying in full. BNPL offers flexible payments, usually interest-free, in a modern take on the old layaway model. Yet instead of paying installments for goods to be collected upon final payment, the consumer takes immediate possession before paying it off over time.
A consumer with an Afterpay account, for example, goes to a retail partner’s website and makes the purchase there, then at checkout selects Afterpay. So the retailer owns the customer. The consumer then pays it off in four equal payments over eight weeks. Afterpay suspends consumers if they miss a payment. And they use the platform responsibly, they earn loyalty points over time.
So consumers get the best of both worlds, in theory. They get to pay cash, essentially, but they can spread it over several pay periods. The BNPL platforms front the money to the retailer and earn fees either from the retailer or the consumer, depending upon the model. Though in most cases, the retailer pays a fee to the BNPL platform for the service, which can help to reduce abandoned shopping carts.
There are those, however, who question whether BNPL is an entirely benign alternative to credit cards. A March 2021 poll by The Ascent shows that 45.0% of U.S. adult BNPL users said they used these services to make purchases that otherwise wouldn’t fit into their budget. So these services may be making it seem more painless than it really is for consumers to stretch their budgets to make a given purchase.
Internationally, we are starting to see regulators stepping in to install some guardrails on BNPL. They are citing some negative consequences from growing BNPL adoption. In New Zealand, for example, regulators are claiming that heavy use of Afterpay during lockdown last year was crowding out funds for basic necessities like groceries.
“When you break up those payments into bite-sized pieces, it can incentivize people to overspend,” Gemma Rasmussen from the consumer advocacy group Consumer NZ told the New Zealand publication Newshub.
The publication reports New Zealand regulators are eying a crackdown. They are citing, in particular, a lack of “affordability assessments” by the BNPL platforms.
It’ll be interesting to see if a similar backlash brews here. So far, the narrative that BNPL is a safer form of credit seems to be holding up.