The Rise of Buy Now, Pay Later

When you go shopping in a brick-and-mortar retail store, your payment options are relatively finite. Most commonly, you might opt to pay with a credit or debit card, or, for smaller transactions, you may choose to pay with cash. While typically less common, some shoppers still pay by check, particularly on purchases over $100.

When shopping online, you might have noticed a new payment option that’s been growing in popularity, particularly in light of the COVID-19 pandemic: buy now, pay later (BNPL). Instead of paying the full price of a purchase outright (whether you check out with a credit or debit card), BNPL often allows you to break the total purchase into smaller payments, often without interest, that can be billed to an account of your choosing. Unlike the nearly antiquated idea of “layaway,” BNPL allows shoppers to receive their purchases before they’re fully paid for. Major brands and department stores such as H&M, ASOS, Sephora, and Macy’s offer BNPL options.

So just how popular have buy now, pay later programs become, and, more importantly, do shoppers consider them safe and trustworthy payment options? To find out, we surveyed over 1,000 people about their online shopping habits, and how things have changed in 2020 in light of the pandemic. Read on as we break down which BNPL lenders are most common, who’s using them and what they’re buying, and whether shoppers consider BNPL loans more secure than their own credit or debit cards.

Exploring Payment Options Online

In 2020, online shopping has dramatically increased as a result of the COVID-19 pandemic, particularly among younger shoppers. And while Amazon has been a popular go-to merchant for many, shoppers have also been more willing to consider other online retailers, particularly when there are cheaper alternatives or the items they’re looking for unavailable on Amazon.

Among the more than 1,000 people surveyed, 63% of online shoppers had used the BNPL option to purchase something. Among those, 66% of Generation Z shoppers and 56% of millennials said they used BNPL for the first time due to COVID-19.

For some people, BNPL options make their purchases possible. One in 3 consumers acknowledged a point of sale (POS) entitlement plan allowed them to afford their purchase, including 34% of millennials and 21% of baby boomers. Nearly 73% of shoppers said the option of BNPL also allowed them to increase their purchase amount by offering monthly installments rather than paying the full amount upfront.

Overwhelmingly, the most common BNPL lender was Afterpay (34%), followed by Affirm (18%), QuadPay (16%), and Bread (11%). Why are these lenders popular? It could have something to do with interest rates:

  • Afterpay: Advertises 0% interest or fees with on-time payment.
  • Affirm: Interest determined at checkout, with 6% APR for active military.
  • QuadPay: Advertises 0% interest or fees with on-time payment
  • Bread: Interest and fees determined at checkout.
  • Klarna: Interest for standard purchases is 19.99%, but your APR may vary for special offers and promotional purchases.

In March 2020, Afterpay had 3.6 million active customers and has been growing exponentially in recent months. Currently, 7,400 merchants in the U.S. offer Afterpay as an online POS option with plans to expand to in-store shopping in the future.

Buy Now, Pay Later to the Rescue

With so many shoppers using BNPL in 2020, many for the first time, we asked them which types of purchases they’ve been using this installment payment solution to cover.

Most commonly, BNPL was used to pay for electronics (54%), beauty and health purchases (46%), home and garden products (38%), and other types of entertainment, including games and books (37%). On average, home and garden purchase totals with BNPL were the highest ($1,187), followed by consumer electronics ($629) and beauty and health ($249). Overwhelmingly, 60% of shoppers reported qualifying for a BNPL loan to finance a purchase for which they wouldn’t otherwise have qualified.

While 1 in 5 shoppers used BNPL to finance large purchases ($1,000 or higher), equally as many used BNPL to fund smaller purchases (under $100). A vast majority of shoppers, 77%, admitted they will be relying on POS options like BNPL to pay for gifts this holiday season.

In recent years, younger shoppers who are particularly conscious of acquiring debt have been reducing their reliance and use of credit cards. By extension, younger generations are also less likely to carry balances on their credit cards, though millennials are more likely to rely on auto or personal loans. Even with BNPL, it’s important to understand how these POS options can impact a shopper’s credit standing.

Here’s a quick glance at the credit terms of some of the most popular BNPL providers:

  • After pay: Afterpay may request your credit report before approving you at checkout and may also report any delinquency or missed payments to the credit reporting agencies.
  • Affirm: For some purchases, Affirm will report your BNPL history to Experian, including your payment history and how much credit you’ve used.
  • QuadPay: QuadPay may request your credit report before approving you at checkout and may also report any delinquency or missed payments to the credit reporting agencies.
  • Bread: For some purchases, Bread will report your BNPL history to TransUnion, including your payment history and how much credit you’ve used.
  • Klarna: Klarna may request your credit report before approving you at checkout and may also report any delinquency or missed payments to the credit reporting agencies.

Lenders You Can Rely On

More than half of shoppers indicated POS lenders offering BNPL options were either extremely (14%) or very (36%) trustworthy, while just 17% found them only a little trustworthy or not at all. Afterpay and Affirm were rated the most trustworthy lenders.

Like understanding the impact of BNPL on shoppers’ credit reports, it’s also important to understand the potential risks that come with taking out these kinds of loans. While many providers are transparent about the process and potential for interest or fees, shoppers may need to double-check the fine print before agreeing to the terms and processing payment. Nearly 1 in 3 shoppers using POS financing admitted to not reading their interest terms before agreeing to the loan, including 37% of millennials.

Many shoppers (32%) didn’t experience any of these negative scenarios, but some were surprised with an unexpected interest rate, difficulties returning an item, or removing late payment fees. For those who do their research, which includes understanding the interest rate on the loan and any promotional terminology, as well as whether the lender reported payments to a credit bureau, paying a BNPL loan can have a positive impact on a credit score.

Savings You Can Count On

More people are shopping online than ever before, and the popularity of BNPL programs only continues to rise. While lenders including Afterpay and Affirm continue to be the most common providers of BNPL payment plans, many shoppers are also using QuadPay, Bread, Klarna, and more.

For purchases big and small, BNPL sometimes allows shoppers the opportunity to buy things they might not otherwise be able to afford, and many will be using these services to pay for their holiday gifts in 2020.

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Methodology and Limitations

We surveyed 1,003 online shoppers who have used a BNPL option to finance a purchase online. Ages of shoppers ranged from 18 to 72, with a mean age of 36 and standard deviation of 9 years. Around 43% of those surveyed were female, 56% were male, and 1% identified as nonbinary. Around 8% of respondents identified as baby boomers, 28% as Generation X, and 59% as millennials.

Survey data has certain limitations related to self-reporting. These limitations include telescoping, exaggeration, and selective memory. We didn’t weight our data or statistically test our hypotheses. This was a purely exploratory project that examines people’s experiences with certain types of loans at checkout.

Fair Use Statement

Buy now, pay later options aren’t going anywhere, and your readers might have questions about how these programs work. Share the results of this study for any noncommercial use by including a link back to this page in your story, so they have full access to our findings and research methods.

about the author

Marc Mezzacca
Marc Mezzacca is CEO of CouponFollow, a consumer savings engine that surfaces popular coupons. He has been in the coupon and deals industry for over a decade with a deep interest in evolving e-commerce technologies.