Apple’s introduction of Apple Pay Later on Tuesday brought the world’s biggest tech company into the buy now, pay later space—and ushered in a new era of competition for BNPL loans.
With BNPL in the spotlight once again, here are four things to know about the split-payment offerings, who has been using them, and what shoppers are buying.
Takeaway #1: It’s Easy to Get a BNPL Loan
Want to get a BNPL loan? It’s not hard. “The majority of loans” get approved, according to Benedict Guttman-Kenney, who co-wrote an economic research paper on BNPL published in the March 2023 issue of the Journal of Behavioral and Experimental Finance.
And indeed, “73 percent of applicants were approved for credit in 2021,” rising from a year earlier, according to a Consumer Financial Protection Bureau report published in September that examined five BNPL lenders including
Affirm Holdings
(AFRM), Afterpay, Klarna,
PayPal
(PYPL), and Zip.
In its most recent report on credit cards, the CFPB noted that credit card approvals came in at 36% in 2020 and at 41% in 2019.
Though the specifics may vary from lender to lender, they usually ask borrowers for their name, address, phone number, and some type of credit or debit card, Guttman-Kenney told Barron’s.
Some lenders may run a credit check, and “they may or may not ask for your income,” he said, adding that income verification rarely occurs.
Takeaway #2: BNPL Users Are Increasingly Distressed
In a March report, the CFPB shed some light on the types of consumers using the loans—they are more likely to be financially distressed. Indicators of financial distress include “higher credit card debt and utilization rates” and “a higher likelihood of having an overdraft,” according to the report.
That leads to a chicken-or-the-egg problem when trying to interpret the data. “We cannot distinguish whether consumers in distress are more likely to use BNPL, for instance, in order to substitute away from high-interest loans that they already have, or whether BNPL use leads consumers to increase borrowing using other non-BNPL products,” the report reads.
Referencing the March report, Guttman-Kenney says the difference in financial distress between those who use and those who do not use BNPL was too large for it to be attributed to BNPL alone.
“I think it’s pretty unlikely that BNPL is the only thing leading them to be in this situation,” he said.
Takeaway #3: BNPL Isn’t Just for Electronics Anymore
Once upon a time, online shoppers filled their carts with electronics. Now, they’re buying groceries, per industry research.
According to an Adobe Analytics report released this month, during the first two months of 2023, “groceries’ share of BNPL orders” rose 40% and home furnishings jumped 38%, while apparel was up 8%, and electronics declined by 14%.
“The rise of buy now, pay later usage for groceries tells us that consumers are likely making bigger purchases online to take advantage of special promotions and stock up on staples, thus managing living expenses in more flexible ways,” lead analyst of Adobe Digital Insights Vivek Pandya wrote in the report.
Takeaway #4: BNPL Isn’t Going Anywhere
Consumers might be using BNPL for necessities now, but even after inflation becomes less of a problem, BNPL isn’t likely going anywhere. “I think there’s a level of convenience and the interest-free component that’s going to still keep it as a viable way…for retailers to drive growth on their online properties through it,” Pandya said.
That’s clear from
Apple
‘s entry into the space, another step in the mainstreaming of BNPL. Key names in the space had a mixed March—Affirm shares have tumbled 17%, while
PayPal
rose nearly 3%—but BNPL is likely here to stay.
Write to Emily Dattilo at emily.dattilo@dowjones.com
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