According to LexisNexis Risk Solutions, consumers under the age of 35 make up merely 35% of traditional credit card holders but 53% of "buy now, pay later" customers. Many of those "BNPL" core borrowers are now making more regular purchases with installment loans since they are so accustomed to utilizing them for luxurious but unaffordable items.
According to LexisNexis Risk Solutions, consumers under the age of 35 make up merely 35% of traditional credit card holders but 53% of "buy now, pay later" customers. (Photo : by Justin Sullivan/Getty Images)
In 2021 and 2022, the most popular product category among Gen Z (18-29) and millennials (ages 30-44) who used the BNPL provider Afterpay was apparel and accessories. However, according to information the firm gave NBC News, it dropped to fourth position last year, behind "hardware," "home and garden," and "arts, travel, and entertainment."
This change is consistent with signs that young adults are adjusting to rising costs by routinely use the rapidly expanding BNPL services, which allow customers to split up transactions into many installments at little or no interest.
Shifts in Spending Habits and Necessity Purchases
Spending on several necessities by Afterpay's youngest users has increased by double and triple digits. For example, contact lens sales increased 465% between 2022 and 2023, waste bag sales increased 182%, and first-aid antiseptic sales increased 98%. Their increases in spending on laptop parts, lighter fluid, and devices for sleep apnea and snoring have exceeded 300%.
It is not just BNPL borrowers in their twenties and thirties who are switching to necessities. According to Adobe, online BNPL loans for groceries have increased by 40% since this time last year, more than any other product category, while the share for electronics has decreased by 14%. This increase is due to grocery purchases made by customers of all ages.
To deal with rising expenses, some users have started exchanging BNPL-based grocery hacks on TikTok and X, previously Twitter.
Borrowers who wanted to avoid credit cards with interest rates of twenty percent or more have flocked to BNPL. However, in an economy where many consumer costs have increased, younger users' preference to pay for more essentials in installments also reflects the rising prevalence of mini-loans.
According to Vivek Pandya, chief analyst at Adobe Digital Insights, BNPL suppliers "got integrated really well and really quickly" into mobile commerce during the pandemic recovery. These days, "the services have highly engaged users." Therefore, the simplicity with which consumers may complete their online purchase and navigate the BNPL payment process has definitely contributed to the growth's persistence.
By charging commission fees to retailers when clients use one of their rapid loans at checkout, the majority of BNPL services generate revenue. Retail partners of Afterpay include PetSmart and 1-800-Contacts, two companies that offer everyday home items. Competitor Affirm said in December that it was extending its reach to self-checkout machines at Walmart's 4,500 locations nationwide, putting the option more accessible for customers restocking on necessities.
On BNPL services, non-essentials are also continuing to expand quickly. According to Afterpay, among its youngest customers, transport ticket spending increased by 1,430% over the previous year.
According to Affirm, NBC News, these transactions are also booming on its platform: last year, the category with the biggest growth among Gen Zers was travel and tickets, which saw a nearly twofold increase in volume overall. Though their top category by volume was "general merchandise, as they increasingly utilized flexible pay-over-time options for everyday purchases," the firm noted that it was also one of the fastest-growing purchases for millennials.
Some researchers are concerned that the rise in demand for BNPL services may encourage more reckless spending.
Based on their financial situation, BNPL clients utilize the services in different ways, according to research by the New York Federal Reserve. Like credit cards, they are typically used by those who are less stable "to make medium-sized, out-of-budget purchases frequently." Although they use BNPL less frequently, more financially solid consumers do so primarily to avoid paying credit card interest on major expenditures.
Purchases under $250 were among the most frequent for both categories of borrowers the New York Fed researchers looked at. Although consumers with solid finances were far more likely to utilize BNPL services for more expensive items exceeding $2,000, even little installment loans can build up, particularly for those who have many open accounts.
However, according to Kevin King, vice president of credit risk and marketing strategy at LexisNexis Risk Solutions, BNPL might be a prudent choice.
