As Amazon’s Prime Day kicked off the holiday shopping season this week, U.S. consumers are expected to spend a record $18.5 billion using buy now, pay later for purchases in the last quarter of the year, according to projections by data firm Adobe Analytics.
Buy now, pay later (BNPL) exploded in popularity as the COVID-19 pandemic forced more shoppers online, driving $75 billion in online spending in 2023, up 14.3% from 2022, according to Adobe.
BNPL providers like Affirm and Klarna boost shoppers’ purchasing power by lending them the money for purchases, which they repay in installments spread over as many as 36 months, although the most common products are four-installment payment plans.
Because most BNPL providers do not report their loans to the credit reporting agencies, comprehensive data on BNPL delinquencies is scant. The Financial Technology Association, which counts three BNPL lenders among its members, reports less than a 2% delinquency rate among those companies compared to nearly 9% for credit cards.
Still, 71% of BNPL users also had credit card debt in 2023, according to the Federal Reserve Bank of Boston.
Afterpay—which is owned by Block—reported that 96% of customers paid all of their installments on time during the fourth quarter of 2023, while Klarna reported that 96% of its pay-in-four users in 2023 paid off their bills early or on time.
For the three months ended Sept. 30, 2024, Affirm said 2.4% of its loans were delinquent by more than 30 days.
Here are five charts illustrating how BNPL is used:
Share of online spending
Consumers spent more than $731.5 billion online from January through September this year, with $57.6 billion of that coming from BNPL purchases, according to Adobe Analytics. That’s up 10.3% from the same period in 2023.
The record $18.5 billion in BNPL purchases Adobe is predicting for the last quarter this year would be a year-on-year increase of 11.4%.
On-time payments
Most BNPL users make their full payment on time, according to the Federal Reserve Bank of Philadelphia, and fewer shoppers were late on their payments between 2022 and 2023.
However, the Philadelphia Fed said that it was unclear if shoppers appeared “less risky” because of changes in BNPL companies’ underwriting methods, or if there was a shift in the pool of consumers who were attracted to BNPL from 2022 to 2023.
Credit scores
The U.S. Consumer Financial Protection Bureau in 2022 reported that most BNPL users who also had revolving balances on at least one credit card had credit scores that were subprime (between 580 and 619) or near prime (between 620 and 659).
Because many BNPL lenders do not furnish data to the credit reporting agencies, consumer advocates have warned that BNPL debt is a blind spot for regulators, other lenders and BNPL lenders themselves.
In May, the CFPB issued an interpretive rule applying new requirements for BNPL lenders, mandating that companies must investigate consumer disputes, refund products that have been returned and provide periodic billing statements. The companies are not required to assess a consumer’s ability to repay a loan.
Average monthly payment
Fifty-eight percent of BNPL users this year reported having an average monthly payment of $100 or less, according to The Motley Fool, a research firm. In contrast, Experian reported that the average monthly credit card payment users had in February was $202.
Only 2% of BNPL users had an average monthly payment of more than $1,000.
Uses across generations
For shoppers considered Generation X, Millennials and Generation Z, or those under age 60, clothes were the most popular BNPL purchases last year, per PYMNTS, a news provider focused on payments, while more Baby Boomers used BNPL to purchase furniture.
Groceries were also a popular BNPL purchase across generations. The CFPB found that BNPL usage for everyday purchases like groceries, gas and utilities was up 434% in 2022 from 2020 as consumers faced rising prices.
—Hannah Lang, Reuters