Changing Perceptions of Debt Make Buy Now, Pay Later More Lucrative

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Changing perceptions of what debt means are leading to increased adoption of Buy Now, Pay Later payment methods, according to a new report by Reach3 Insights.

As Buy Now, Pay Later (BNPL) usage for online purchases continues to grow—particularly among consumers making large transactions and buying luxury items—retailers are looking at how they can capitalize on the trend to influence purchasing behavior. 

BNPL usage for online purchases is up 71%, with millennial shoppers by far the most likely group to use the payment option. This age divide could prove to be an important one for retailers selling higher-end goods, like electronics and furniture. Reach3 found that older generations are the most hesitant to try BNPL. Research also indicates that BNPL is used most frequently at stores that typically already offer financing, usually via store credit cards or installment plans.

“The changing perceptions of what ‘debt’ means by generation, particularly in using BNPL instead of credit cards, really highlights the appeal of ‘0% interest if paid on time’ for younger consumers,” says Reach3 Insights Research Director Will Buxton. 

The more educated and savvier consumers are about how BNPL actually works, the more likely they are to use the service. While credit checks are seen as a necessary component, they may also be holding the industry back. Consumers who have not used BNPL feel least confident in their understanding between hard credit checks and soft credit checks. Given that, it stands to reason that consumer education could play a big role in encouraging continued adoption.

“The limited understanding of how credit checks work and the misconception that using BNPL will have a long-term positive impact on their credit score are working in favor of BNPL at this time,” Buxton says.

Reach3’s research team found that convenience and being able to buy items they otherwise couldn’t afford are the top reasons for why shoppers use BNPL, while rewards and remaining debt-free are the top barriers. Among those shoppers who “sometimes use BNPL,” 46% said the ability to pay off purchases quickly without overextending themselves was a top reason for using the service.

“Convenience is paramount when shopping online and leads to more impulsive purchase habits compared to physically needing to drive to a store,” Buxton says. “However, there is confusion about how exactly BNPL works and how the process is executed across the various providers, which could slow down the growth once more of the late majority or laggards enter the fray.”

Among those who have already tried BNPL, Reach3 found high intent to use the service again. That future intent is also strong among non-users. Among those who have never used BNPL, 55% indicate they “sometimes like to explore the financial terms of BNPL,” despite never having used it. To Buxton, that indicates a curiosity among shoppers, and it could serve as a key for marketers looking at how to bring more consumers on board. 

“A key to conversion is creating more educational and informative materials that better explain the process at POS, while also delivering on the perceived benefits of BNPL,” he says.

If the trend toward BNPL continues, Buxton says it’s reasonable to expect BNPL brands like Klarna, Affirm, Afterpay, and Paypal to incorporate rewards and incentives for shoppers who use the service, much in the same way consumers earn points and rewards for using their credit cards today.

“From an industry perspective, BNPL represents an evolution in payment strategies that gives the consumer the perception of ‘more control and flexibility’ much like the rise of credit cards did in the mid 1900s,” Buxton says. “We’re already seeing decreased usage of credit cards among Millennials and Gen Z, particularly among those looking to ‘make their money work for them’ instead of just deferring payments. Given the approaches to debt and savings for younger cohorts we’ve seen in other research, it seems perfectly reasonable to expect BNPL to incorporate rewards programs in the future to stand out and increase market share in a confusing landscape.”

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