The reasons for the BNPL boom are several and quite interesting. Users are attracted to the feature of receiving their purchases right away while organizing repayment over a period of weeks or months. In some cases it serves as a supplement to credit cards; in many cases, BNPL serves as an alternative.
BNPL loans are most popular amongst millennials, who prefer to have a selection of payment options and are quick adopters of new payment technologies. A whopping 54% are currently using this payment method. Millennials and gen Z have definitely shown an aversion to credit and a willingness to adopt alternative payment methods, particularly BNPL. Younger generations look at BNPL as a budgeting tool, and many see credit cards as an easy way to get into debt. Merchants have taken notice when studies have found that millennials and Gen-Z spend 44% and 72% more on orders if BNPL is available as an option.
According to a recent survey, ease and convenience is the number one reason for use of BNPL (44% of respondents). Imagine trying to negotiate with a cashier at a brick-and-mortar store – “Hey I can give you half the money now, and I’ll come back in a week and give you the rest. I might forget, or I might be short on cash, but don’t worry about it, I’ll just pay it later.” The BNPL plan takes care of that conversation for the user. Surveyed users also pointed to other reasons for their preference for BNPL: the ability to spread costs over time, interest-free payments, and the ability to pay for purchases that individuals couldn’t afford otherwise.
BNPL is attractive to lower-income customers too, allowing them to pay off a purchase in 2, 4, or multiple instalments. BNPL apps and services also skip the credit report checks required of credit card applications thus significantly lowering the bar to entry. This empowers customers that would otherwise be deterred from making purchases. COVID's impact on income was undoubtedly an accelerator of this trend.
Some experts even point to the 2008 economic downturn as a reason for the success of BNPL. Today’s younger generation of shoppers grew up during the economic recession and were of course influenced by its effects. Credit card debt became associated with the economic downturn, encouraging shoppers to seek out more inspiring options. A recent survey found that ⅔ of millennials do not have a credit card. Credit card-related reasons dominated in the list of decisions to use BNPL with favourable terms and conditions. Respondents in the aforementioned survey found BNPL useful because they were able to borrow money without a credit check, don’t like credit cards, can’t get approved for a credit card, and/or their credit cards were maxed out. BNPL does not affect your credit score (at least not yet).