How consumers really feel about 'buy now, pay later'
Good morning, and welcome to Protocol Fintech. This Tuesday: consumers’ real feelings about “buy now, pay later,” a new crypto PAC and Starbucks’ NFT play.
Consumers are buying ‘buy now, pay later’
There are a lot of misconceptions about “buy now, pay later” companies if you ask Penny Lee, CEO of the Financial Technology Association. The fintech trade group offered an early look at survey data it commissioned from Morning Consult about pay-later products. According to the survey results, all that hubbub you’ve been hearing about consumers souring on “buy now, pay later” amid a recession just isn’t true.
If you’ve used “buy now, pay later,” you get it and you love it. Of survey respondents who have used one of the pay-in-four credit services, 94% said they clearly understood the terms and conditions, according to Morning Consult.
Only 35% of adults generally have a favorable opinion of “buy now, pay later,” but 79% of adults who have actually used the services have a favorable opinion. Haters are rare: Fewer than 5% of users have strongly negative perceptions of the services, and that held across ethnicity, income, age and gender.
“One of the things that we have heard consistently from some of the consumer groups is that users do not understand the terms and conditions and so it’s potentially trapping them in a debt situation unknowingly,” said Lee. However, “the information that we found in this poll was more confirmatory — it’s what we hear on a daily basis from what BNPL companies are saying about the products and the users and how they interact with it.”
Notably, the survey addressed respondents' perceptions of “buy now, pay later” rather than quizzing them on the terms and conditions themselves. A different Morning Consult survey showed that one in five “buy now, pay later” customers missed a loan payment in January, suggesting that at least some consumers are unprepared.
An increasing number of customers are using “buy now, pay later” for essentials. Groceries and food were bought now and paid later by 14% of respondents, while 13% used pay-later for health care and 12% used it for car repairs.
“Buy now, pay later” is often associated with customers splurging on items a bit outside their price range for stay-at-home comforts during the pandemic, like Pelotons or upgraded kitchen appliances. But as customers tighten their belts, they’re stretching out payments more for things they need.
A New York Times article pointed out that more customers were starting to “eat now, pay later,” causing some backlash. But pay-later companies are leaning into the idea, framing the issue as customers using the payment products for increased financial stability when times are tough — not going into debt for food.
“Using multiple BNPLs has made it easier for consumers to pay for their purchases,” the survey’s authors wrote in a summary. Consumers were also asked generally about their financial outlook for the coming year and whether they’re worried about paying for gas or food.
Both respondents who do and do not use “buy now, pay later” were equally likely to say they are worse off financially today than a year ago, suggesting the services aren’t adding to financial precarity.
Interest rates matter. The largest segment of respondents, 45%, said that low or 0% interest rates were the most important features of “buy now, pay later” offerings.
About one in six adults reported that they liked the flexibility of the payments, while 15% liked the “easy-to-understand” terms and conditions and 11% said they liked transparency.
That’s despite often-repeated statistics that suggest a lot of consumers use credit cards to fund their pay-later payments. When asked, Lee refuted this assertion, saying that FTA’s internal data shows that 85% of BNPL customers use a debit card — and that those who use a credit card are doing so to accrue perks like points.
Lee is speaking at a Senate Banking Committee hearing this morning on the topic of how new consumer financial products impact workers. Several of the speakers, including the FTA, say they expect the hearing to center on “buy now, pay later” and earned-wage access products. Rachel Gittleman from the Consumer Federation of America is also speaking, and will likely express some of those arguments from consumer groups that Lee alluded to in Monday’s meeting, like the concern that “buy now, pay later” customers are being duped into debt. George Mason University law professor Todd Zywicki and Towards Justice executive director David Seligman will also speak. Consider the hearing a chance to survey Congress on how it feels about these fintech products.
Protocol link: https://www.protocol.com/newsletters/protocol-fintech/bnpl-consumers