Throughout the holiday season, consumers across all demographics have leaned on buy now, pay later (BNPL) services to make large purchases and manage inflation prices.
On Cyber Monday, Adobe Analytics witnessed a 43% year-on-year increase in BNPL purchases. Among users, Black consumers are more likely to face potential risks.
“The 2023 holiday shopping season began with a lot of uncertainty, as consumers shifted their spending to services while dealing with rising costs across different facets of their lives,” said Vivek Pandya, lead analyst, Adobe Digital Insights, in a press release.
“The record online spending across Cyber Week, however, shows the impact discounts can have on consumer demand, especially with quality products that drove a lot of impulse shopping.”
The Consumer Financial Protection Bureau (CFPB) reported a 63% higher probability for Black consumers to use BNPL platforms than white consumers. The BNPL market is projected to hit $3.98 trillion by 2030; many users are less resilient in the current economic crisis.
A Lending Club’s Holiday Season report found that 37% of Americans
will purchase gifts and other items with personal loans, credit cards, and buy now, pay later this holiday season. This is a 3% rise from 2021.Short-term financing loans, such as Klarna, AfterPay, Sezzle, and PayPal’s Pay, often come with appealing interest rates or no interest rates at all. Similarly, BNPL allows customers to agree to make between four and six payments at two-week intervals, offering zero-interest loans.
According to the CFPB, close to a third of BNPL
users have struggled to make the payments, and to avoid defaulting on their plan, they had to skip paying an important bill. As a result, 22% of Americans who have used BNPL have immediately regretted their decision or wished they had not signed up.However, a late payment has consequences. With 27% of Black households late paying their debts, BNPL may shut users out from using the app or face late fees or a calculated percentage of the outstanding loan.
Studies support that loan stacking is another recipe for potential risk. While BNPL loans do not appear on credit reports, one with multiple BNPL loans might have to deal with a hefty price.
Experts stress the importance of understanding the potential fees, interest rates, and rewards before committing.