Is a BNPL Holiday Surge Cause for Concern, or a Sign of Consumer Savvy?

According to a recent report from Modern Retail's Melissa Daniels, data surrounding engagement with buy now, pay later (BNPL) services so far in the holiday sales season was examined: The report suggested that retailers, brands, and fintech companies teamed up with cash-strapped consumers to deliver a record $1 billion in BNPL transaction on Cyber Monday alone.

BNPL providers have drastically improved their assortment of options delivered to would-be buyers, moving beyond the traditional "pay-in-four" plan to also offer six-month payment plans at 0% interest, or a 2-year plan with interest costs attached. BNPL services are now also showing up in digital wallets, with Apple Pay playing host to Affirm and Klarna, as the industry matures. Sephora, for example, even offers at 25% discount to Klarna or Afterpay users, showing that retailers are seeing opportunity -- and dollar signs -- in the potential afforded to BNPL shopping.

Daniels cited Tanuj Parikh, head of commercial for Cash App and Afterpay, as noting that BNPL is frequently now positioned at the fore when consumers kick off their online browsing, versus having been confronted with the option only at checkout in days past.

“Retailers have gotten a lot smarter, where payments shouldn’t just be a bottom-of-the-funnel thing,” he said.

“Doing site takeovers and having full ‘surround-sound’ marketing across that journey are the things that work really well," he added, noting that Afterpay was expanding into wellness, travel, and ticketing -- and that merchants such as Diesel, Jenni Kayne, Tecovas, and Thursday Boot Company had signed on just before the holiday sales season started ramping up.

“We’ve had a really deliberate focus on expanding our merchant network beyond our original strengths in fashion and retail, and you see a lot of that flow through,” Parikh stated.

The U.S. is home to ~53.6 million individual BNPL users, per the Consumer Financial Protection Bureau (CFPB), a 12% improvement over 2022's figures. Those users engage in about 6.3 transactions per year, with an average spend of $845 per transaction.

Parikh underscored the fact that younger Americans, particularly Gen Zers and millennials, were picking up BNPL more quickly than their older counterparts -- largely due to an aversion to credit card usage, tied to fees and interest charges. For its part, Affirm registered a statistic showing that 0% interest products enjoyed growth of 77% YoY over the most recent Black Friday-Cyber Monday weekend. Even more tellingly, engagement with six-month BNPL plans exploded by 232% YoY.

Consumer Wellness Mentioned as a Concern by BNPL Insiders

With BNPL showing expansion both in terms of the options presented to consumers and in terms of broader adoption, the question of its impact on shoppers was brought to the fore.

CEO Nandan Sheth of Splitit, a fintech company offering installment payments for credit card holders, noted that across his company's portfolio, the promotion of 0% BNPL plans to new customers drove a 93% increase in conversions as compared to a more traditional flat money-off offer.

And despite the troubled economic portrait facing the U.S., Sheth indicated surprise over how much total transaction volume Splitit had seen over the holiday season so far -- as well as a bit of concern over another key metric.

“We saw an incredible amount of growth, and our average ticket is a lot lower than we expected — and frankly, that scares me a little bit," Sheth began.

“Why are consumers putting a $250 item or a sushi dinner on installments? We learned a lot from that,” he added.

Parikh also spoke to this latter concern while also mentioning the centrality of Afterpay's underwriting process, making sure transactions could be managed as the company enjoys rapid growth.

“We are really, really laser focused on it to make sure that those numbers stay healthy and we’re continuing to do right by consumers. We want to make sure this is a healthy and responsible operator for customers, even in a stressed climate," Parikh said.