At the height of the COVID-19 pandemic, consumers saw a new payment method hit the online shopping scene: buy now, pay later. The buzz around the small retail loans has since seemingly died down — but industry experts say this payment method is here to stay, as it continues to go up against established ways of making a purchase like credit cards.
Buy now, pay later (BNPL) programs like Klarna, Sezzle, Afterpay, and Affirm allow shoppers to purchase an item – whether it be clothing, home decor, or even food – without paying the full price at once. Instead, consumers can break it up into four interest-free payments on a weekly or bi-weekly basis.
The launch of this way of paying has coincided with massive growth within the global e-commerce market. In 2023, online retail was worth nearly $24.5 trillion globally, almost $10 trillion more than what it was in 2020. The International Trade Administration has estimated this market will continue to balloon, reaching upwards of $36 trillion by just 2026.
Tens of millions of Americans have reported using BNPL programs, with research conducted by Capital One finding that around 88.2 million people said they used one during 2023 – up by around 11.6% from 2022. As consumers have turned to these installment payments largely for their convenience, there have long been worries about the long-term viability of the purchasing method and its impact on consumer debt.
These short-term loans advertise themselves as interest-free, though, shoppers can find themselves in trouble if they miss payments. Depending on the company used for the purchase, consumers may face a fee of up to 25% of the original order amount.
Amid these concerns, some research indicates the initial growth and usage of BNPL has slowed or fluctuated. In 2022, a survey conducted by NerdWallet found that only around 30% of Americans were using BNPL. One year later, a similar survey found that number had dropped to 25%. However, NerdWallet found in May that the amount of Americans that used BNPL in the last year jumped back up to 33%.
Separate research conducted by WalletHub has also pointed to a slower expansion than its “rapid growth” in past years – potentially driven by increased regulation, debt concerns and lenient consumer protections, according to analyst Chip Lupo.
Industry experts have pointed to this ebb-and-flow of usership as evidence of BNPL finding its niche of consumers. LexisNexis Risk Solutions tracks transactions and applications of BNPL programs. Based on their research, the number isn’t dropping. But, the type of consumer is, Kevin King, vice president of credit risk and marketing strategy told Salon.
King explained that the trends over the past 18 months show a drop in new users but a massive increase in return shoppers. This shift in the consumer base may explain the fluctuating surveys, he said.
“A lot of people gave it a shot in that 2020 to 2022. A lot of people loved it, some didn’t, right?” King said. “And so I think you now have a core base of consumers that leverage it heavily and plan to keep using it in more and more ways. And then you’ve got a lot of consumers who kicked the tires and said, ‘Hey, I get the appeal, but you know, not for me.’”
While new users may have dropped off BNPL overall per LexisNexis, the company expects to see a 16% increase in BNPL transactions by the end of 2024.
For individual companies, that growth may be even higher. Sezzle CEO Charlie Youakim told Salon their BNPL program has continued to see significant growth since launching in 2015. In Q2 of 2024, Youakin said the company saw 38.9% growth year-over-year, up from 33.2% growth in Q1.
Like other BNPL programs, Sezzle offers a number of products, including a subscription service with priority support, discounts, rescheduling opportunities and other benefits. Even with just this venture, the company has had massive growth, seeing a jump in subscribers from 170,000 last year to 460,000 in 2024.
“I don’t know where it peaks, but it still feels like the sector’s growing,” Youakim said. “It’s just that there’s less buzz about it, because it’s less new, there’s less chatter.”
For King, this is all evidence that BNPL programs will continue to be relevant. However, as a newly established payment method, it could face some challenges, particularly as the Consumer Financial Protection Bureau said in May BNPL should face similar regulations as credit cards.
Experts warn that stronger regulations directly affecting operations, extreme changes within the stock market, as well as loan defaults and bank failures may shake up the BNPL industry.
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“Honestly, I think it’s kind of like a ticking time bomb,” warned Vijay Marolia, chief investment officer for Regal Point Capital Management, noting that he avoids using any BNPL programs and urged others to do the same.
“Please keep it as a last resort, unless you’re one of those few people that are gaming the system, so to speak. There’s no free lunch,” Marolia said.
Others have touted BNPL as a tool, saying that opting into a plan should be based on each shopper’s financial situation.
WalletHub’s Lupo told Salon that before making any BNPL transaction, consumers should make sure they will have the funds for each scheduled payment. He advised BNPL be used only for essential purchases, with only one plan open at the same time. If used alongside a budget, consumers can apply BNPL to their advantage in managing their finances, especially if they have limited access to credit.
Despite concerns about the future of BNPL and its potential misuse by consumers, King is confident the small-term loans will remain a payment option for years to come. Though, it may never surpass other established methods.
“I don’t think it’s ever going to knock off credit cards,” King said. “But unless something happens to make up how the industry is currently allowed to operate, I think you’re going to see it 10, 15, 20 years from now, absolutely.”