Digital Transactions Authoritative, insightful and timely information for payments professionals
By Anita Lemaire, Product Executive, Global Cards and Payments, FIS
The buy now, pay later (BNPL) market is expected to grow 181% by 2024, and will account for 13% of all global e-commerce payments that same year, according to the 2021 Global Payments Report by Worldpay from FIS.
These post-purchase installment programs aren’t a new concept, but the ease of use, flexibility and mutual benefit they bring to various phases of the value chain have made them one of the fastest growing segments in payments. To compete with alternative point of sale (POS) installment loan providers like Affirm, Klarna and Afterpay, and direct competitors like Chase, Citi and American Express which all offer flexible repayment plans, credit and debit issuers must respond. Here’s a closer look at what’s driving BNPL popularity.
Cardholders want to control their finances
When FIS surveyed 15,000 consumers around the globe in June 2020, respondents between the ages of 18 to 39 were particularly receptive to the idea of paying with installments over time, for a few reasons:
- Value of having control over their money
- Want to track spending
- Desire to avoid going into unmanageable debt
Nearly half of consumers across all generations said they were comfortable taking on debt they could pay off over the short term, and Gen Y and Gen X (consumers between the ages of 24 and 54) were the most likely to agree with the statement.
Price point also matters when it comes to the likelihood of using BNPL options. Half the consumers surveyed would likely use BNPL for a purchase under $250, but the figure dropped to 41% for a purchase between $250 and $999. For purchases of more than $1,000, just 31% of respondents would use a post-purchase installment plan or BNPL option.
Despite research conducted by The Ascent revealing 31% of respondents had incurred some type of late fee associated with a BNPL offering, the illusion of control is overriding the actual cost of using such a program when repayment terms are not followed.
Credit card ownership has declined with the pandemic
Except for senior millennials (ages 29 to 39), credit card ownership dropped in every age group between April 2020 and February 2021, according to FIS research of 1,000 Americans conducted in February 2021. Non-card ownership was particularly prevalent among Gen Z consumers (ages 18 to 23). In April 2020, 31% of Gen Z respondents did not own a credit card. By February 2021, the number jumped to 51%.
Reasons for this fall off might include an increased use of digital payment methods that eliminate the need for credit cards. Other reasons to blame could be declined credit card applications, or suspensions of credit card use due to worsening financial conditions. In fact, The Ascent’s research showed BNPL usage jumped 62% between July 2020 and March 2021 among GenZ users.
Buy now, pay later offers also appeal to debit users
There’s debate on the need to regulate BNPL providers, so they do not become yet another form of predatory lending for consumers who may not understand the terms they’re agreeing to. Yet these offerings do provide borrowing options for those who may have none. For example, when Capital One said it would no longer approve point of sale lending transactions on its credit cards due to excessive risk, Afterpay CEO Nick Molnar told Pymnts.com the decision wouldn’t impact his business. Why? According to Molnar, 90% of Afterpay’s transactions are paid for with debit cards.
Let’s Reimagine Card Payments
Issuers cannot disregard BNPL as a passing trend or fail to address consumers’ overall response to them. With FIS BNPL, you can give cardholders the option to convert their credit and debit purchases into installment plans, for flexibility when making large purchases.
