Buy Now, Pay Later: Market trends and consumer impacts
Buy Now, Pay Later (BNPL) is a form of credit that allows a consumer to split a retail transaction into smaller, interest-free installments and repay over time. The typical BNPL structure divides a $50 to $1,000 purchase into four equal installments, with the first installment paid as a down payment due at checkout, and the next three due in two-week intervals over six weeks.
In December 2021, the Consumer Financial Protection Bureau (CFPB) issued market monitoring orders to five lenders to provide data on their BNPL loans. This market report summarizes that data, individual and organizational submissions to the CFPB, and publicly available sources to provide a review of BNPL’s marketplace importance and consumer impacts in the United States.
The report identifies several competitive benefits of BNPL loans over legacy credit products. These benefits are both financial (i.e., no interest and sometimes no late fees) and operational (i.e., ubiquitous, easy to access, simple repayment structure).
The report also identifies three categories of potential consumer risks: discrete consumer harms (i.e., a requirement to use autopay for all loan payments), data harvesting (i.e., lenders’ use of consumer data to deploy models, product features, and marketing campaigns to increase the likelihood of incremental sales), and borrower overextension (borne out in discrete short- and long-term risks).