The Buy Now, Pay Later (BNPL) market may be in trouble. According to results from an August 2022 survey by Nerd Wallet & The Harris Poll, BNPL usage among Americans has declined 7% from September of last year. The slight decrease of 7% may not seem like it’s a big deal, but paired with recent news of vendor layoffs, regulatory scrutiny by the CFPB, and a possible economic recession looming, we are concerned with what is on the horizon.
We’ve taken a cautiously optimistic stance on the product since the beginning but have always advised that it’s not sustainable for a business to lend credit without regard to credit portfolio quality. Just as we have advised credit card issuers, BNPL providers must tighten their portfolios and be careful not to overextend in a turbulent market. Short-term gains could cause major long-term losses.
The upside is that the NerdWallet survey showed that 30% of Americans used the product within the past 12 months, and of those, the average usage was six times. With heavy reliance on mobile apps and branding towards a younger audience, the product was most popular among millennials (50%) followed by Gen Z (44%).
I fall into the millennial segment and having just used a BNPL vendor for a purchase. I can say that the streamlined process of a quick credit check, fast approval, and a sizable loan now sitting in my balance, was as pleasant, as it was scary.
Overview by Ben Danner, Research Analyst at Mercator Advisory Group.
