Consumers finding more opportunities to buy now, pay later

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More merchants are adopting this financing option to reach younger consumers

For years credit card companies have reaped the benefits of consumers’ shift to online shopping — this is because nearly all virtual shoppers pay with a credit card. But, lately, consumers have found an alternative.

Buy now, pay later (BNPL) services are growing in popularity, and industry analysts say they're now competing with credit cards for consumer spending. There are a growing number of BNPL apps, and more merchants, including Amazon, are embracing the payment plan.

BNPL is actually an old-fashioned concept. In the days before credit cards, consumers often financed major purchases on the installment plan. Today, most BNPL services allow consumers to pay for a purchase over several weeks, making interest-free payments every two weeks until the purchase is paid for.

Some personal finance experts have praised the concept as a way for consumers to manage their money. Not only do they avoid high interest rates, but they also avoid adding to growing balances since the purchase is paid for in a short amount of time. 

Popularity among young consumers

The concept has been embraced by young consumers, which is a reason both Walmart and Amazon now offer BNPL plans.

"Buy now, pay later solutions, in general, resonate with younger customers," Julia Unger, Walmart's vice president of financial services, said in an interview with Investor's Business Daily. "They don't view BNPL as debt. They see it as a payment plan, which is a little bit different. If you have millennials that are choosing BNPL solutions instead of credit cards, we want to make sure from an acceptance standpoint that we're offering the right solutions to customers."

Walmart, partnering with BNPL fintech Affirm, offers BNPL on certain categories, including home furnishings, jewelry, and musical instruments. Most consumable products are not eligible for the financing plan.

Amazon gets on board

Late last month, Amazon also struck a deal with Affirm to provide financing on certain products. Amazon is now allowing customers to break up purchases of $50 or more into smaller payments.

Some established payment platforms, such as Square and PayPal, have recently begun offering BNPL services after acquiring companies that operate BNPL apps.

According to Investor's Business Daily, BNPL is growing exponentially. It cites data from eMarketer projecting that more than 45 million people in the U.S. will use BNPL services in 2021, up 81% from 2020.

Even though BNPL avoids the high interest rates of credit cards, consumers who don’t make their agreed-upon payments can and do fall behind. Earlier this month, Credit Karma reported that a survey it commissioned showed 44% of consumers had used BNPL — of this number, 34% reported being behind on payments.

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