Jennifer Bennett, Strategic Product Manager, Velera

Buy Now, Pay Later (BNPL) is a form of short-term financing that allows consumers to make purchases and pay for them over time in fixed payments, often with no interest. Today’s major players are Affirm, Klarna, AfterPay and PayPal, which all offer BNPL options at the point of sale. Apple introduced Apple Pay Later in March 2023 as a BNPL option, and Google has teamed up with BNPL provider Zip to offer a “pay-in-4” service at checkout.

Buy Now, Pay Later services are also available after purchase, allowing consumers to convert a recent credit card purchase into installments. Post-purchase plans require processor integration; they are currently available from major financial institutions, including American Express, Chase Bank, U.S. Bank, Citi and Barclays. This type of BNPL service gives card issuers greater flexibility based on cardholder history, existing credit lines and regular interactions.

These two types of BNPL — point-of-sale and after-purchase — tend to attract different types of consumers. This is where credit unions, as the financial partner and advisor for their members, can step in to offer the best options and keep members informed about responsible use of the service. Knowing your audience also helps market appropriately to consumers to drive adoption and usage.

Who’s Using BNPL?

In a recent study conducted with Mastercard, we identified that BNPL users tend to skew younger — with consumers aged 18-49 more likely to use BNPL now or planning to do so within the next six months. Non-users are likely to make more transactions with debit and credit and tend not to carry a balance month-to-month on their credit cards.

As for who is using the two types of BNPL services, our research found that consumers who use point-of-sale BNPL are more likely to be financially vulnerable, having high-interest financial products, loans and lower household income. They often carry a balance month-to-month on their credit cards. BNPL enables these consumers to enjoy the benefits of credit without having a credit report pulled.

Consumers who use post-purchase BNPL already have access to a card, so compared to those using point-of-sale BNPL, they may have higher credit scores and household income. 

How is BNPL Being Used?

Whether at point-of-sale or after purchase, BNPL is proving attractive to cardholders who want more cashflow flexibility, as well as the ability to budget and manage their finances. It’s also proving attractive to merchants, who are seeing a higher conversion rate in purchases made when offering BNPL options to consumers. According to Affirm for Business, 60%-76% of consumers stated they would have delayed or not purchased at all without the ability to spread out payments with BNPL. 

Consumers also tend to make larger purchases than they would have without being offered a BNPL option, as BNPL effectively increases the affordability of merchandise in high-use sales, such as apparel, beauty, home improvement and electronics. 

For many, BNPL is a convenient, frictionless alternative to traditional installment loans or credit cards, and it can also serve as a safety valve for those in more vulnerable economic straits. Such households may leverage the service only when under financial stress (3.6% of PYMNTS survey respondents stated they used BNPL for a “financial emergency”). In addition, one in seven Millennials report using BNPL to purchase groceries. 

Beyond consumer goods, other industries are offering BNPL options to convert consumers and ease the burden of high upfront payments.

• Travel and Transportation – BNPL providers like Uplift help consumers to better manage the cost of travel when booking vacations and flights. Other providers are helping manage the cost of car repairs.
   
• Healthcare – Patients can use BNPL to engage in elective or cosmetic surgeries, as well as procedures that are either not covered by insurance or have high deductibles.
   
• Rent – For a monthly subscription fee, BNPL providers like Flex will pay your rent upfront, allowing users to make staggered rental payments across two installments.

Another Form of BNPL: B2B

Small to medium-sized businesses (SMBs) can face challenges securing loans due to their lack of collateral and the nature of their accounting records, which prioritize tax minimization, so traditional lending offerings are not always well-suited to their needs. Newer solutions, such as business-to-business (B2B) BNPL, offer a better experience for both buyers and sellers.

B2B BNPL providers conduct a credit assessment to determine the amount of credit to extend. From there, businesses can make purchases without immediately accruing interest and can spread out payments in manageable installments. The merchants they purchase from are paid upfront and engage in faster sale cycles with less risk, since many B2B BNPL providers assume the credit risk and non-recourse financing. Finally, cash flows are improved on both ends allowing for effective resource management and more growth potential.

Buy Now, Pay Later is a valuable payment method if used responsibly. Whether your member is engaging in point-of-sale BNPL, taking advantage of post-purchase services or looking for a boost for their business with a B2B BNPL loan, you can play an active role in educating them about the benefits of this new loan model and how to use it to improve financial wellness. 

Jennifer Bennett is a seasoned strategic product manager with over 20 years of experience in the payments industry. Renowned for her expertise, Jennifer has consistently demonstrated leadership and innovation, particularly in her work in the credit union space. Her strategic vision and deep understanding of the financial sector have been pivotal in driving product development and enhancing customer experiences.