BNPL and Spending Patterns with expert insights from Taras Boyko

The concept of buy now pay later has always appealed to consumers but at a time when budgets are tight, the concept is being rolled out over more and more products. Consumer behaviour is changing accordingly, with people looking to spread the cost of purchases over a longer period. When used effectively, experts believe it can be a win/win for companies and consumers.

“We’re seeing a host of new opportunities opening up for more flexible and adaptable payment options,” says Taras Boyko, who is a European entrepreneur and investor with more than a decade’s experience in the financial sector and a founder of Hungary’s BankBee. “Customers increasingly want different payment options and businesses are willing to offer them,” Boyko explains.

The rise of BNPL

BNPL enables consumers to make purchases and defer the payment to a later date, splitting the total cost into smaller, manageable instalments. This payment option has gained significant traction in recent years, with companies such as Klarna, Zip, Afterpay, and even Apple offering zero-interest payment plans for a variety of purchases from partner retailers. In 2023, the global BNPL market was valued at $30.38 billion, and it's projected to skyrocket to $167.58 billion between 2024 and 2032, growing annually at a rate of 20.7%, as per Business Fortune Insights. 

This surge in BNPL usage is reshaping the dynamics for both consumers and retailers alike. For consumers, it’s democratising access to credit, particularly for those averse to traditional credit cards or facing challenges in securing conventional forms of credit. Increasingly agile payment services willing to offer more lenient terms including low or zero interest give people more options when it comes to payment.

The fintech sector has been crucial in providing faster and more convenient transfers and more adaptable terms, which can help consumers choose the payment options most suitable to their needs. The ability to move money quickly, conveniently and affordably helps to give people the power to pay in a way that works with their budgets.

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“This shift in consumer behaviour is particularly pronounced among younger demographics, who are drawn to BNPL services for their fixed payments, minimal interest rates, and simplified approval processes,” adds Taras Boyko, highlighting statistics from LexisNexis Risk Solutions which show that consumers aged 35 and under make up 53% of BNPL users, compared to 35% of traditional credit card holders. Notably, the price threshold for using BNPL starts at or above $100 for Gen Z and Millennials and at or above $200 for Gen X and Boomers. “This data underscores the growing preference among younger consumers for BNPL options, indicating a notable change in spending patterns towards everyday purchases.” 

Opportunity knocks

For retailers, this can be great news. Flexible payment terms increase the number of people they can sell to. With more customers able to pay the same price but spread in time, retailers have instantly grown the potential market for their products.

BNPL also underpins impulse buying behaviour. With customers no longer needing to save up or delay the satisfaction of a needed item, they will spend less time agonising over the decision and will be more likely to make a quick purchase.

The availability of BNPL payment options heightens the perception of affordability which means opportunistic buying behaviours, normally associated with low prices, can surface further up the food chain. As customers become more comfortable and familiar with this option, they may instinctively favour merchants who are set up to offer more adaptable payment options.

Credit providers also have an opportunity to boost profits through innovative products and payment terms. With more options available to customers, retailers can improve personalisation deepening their engagement with customers leading to longer term and more profitable relationships.

“The current market is one of change and opportunity. If handled in the right way BNPL can expand choices for customers and create opportunities for retailers and credit providers. People want new and innovative payment solutions and the fintech sector is perfectly placed to provide them,” Taras Boyko maintains.

Challenges of BNPL

However, another aspect emerges from the changing consumer behaviours. The BNPL concept offers people the chance to try before they buy. By paying only a deposit or agreeing to a monthly down payment, they don’t have to risk the upfront cost and can try the product before committing to it for the longer term.

On the one hand, this removes one of the barriers standing in the way of purchases. When prices are high, customers will be much more cautious about products they’re not fully confident in. By spreading those costs, people will be more willing to take a chance and try the product with the knowledge that they can always return it.

Furthermore, retailers and credit providers can find themselves more at risk from loan defaults. Personal circumstances can change quickly and, if customers can no longer manage repayments, lenders can be forced to shoulder considerable losses.

As competition rises in this sector, providers are competing to offer more attractive deals. That can be great news for choice, but it can lead consumers to overestimate the affordability of items and make spending commitments they cannot fulfil.

The spread of BNPL services has not escaped the attention of regulators concerned that the proliferation of different payment structures can weaken consumer protection. To satisfy the regulators and keep consumer confidence high, retailers will need to maintain the highest possible levels of transparency.

For instance, Apple recently announced plans to report loans made through its Apple Pay Later program to Experian, one of the three major U.S. credit bureaus. “By reporting Apple Pay Later loans to Experian, we aim to help promote greater transparency and responsible lending for both the borrower and the lender, while providing users with the opportunity to further build their credit,” emphasised Jennifer Bailey, vice president of Apple Pay and Apple Wallet. Other major lenders, however, haven’t followed Apple’s lead so far. 

In addition, the global rising cost of money (cost of funds for lenders) is creating another tension for the BNPL business model. In order to close the interest rate gaps credit providers would need to impose additional charges for users and merchants. The latter will be forced to increase the prices for end users. Hello to a new spiral of inflation.

Adapting to BNPL Trends

Experts agree that the surge in Buy Now, Pay Later (BNPL) habits is expected to continue growing. The recent and future growth of BNPL can be attributed to providers’ ability to significantly reduce their costs, which in turn has expanded access to credit for consumers. This trend is reshaping consumer behaviour, particularly among younger demographics, and offering new opportunities for retailers and credit providers who adapt to this demand for flexible payment options.

However, the rapid expansion of BNPL also brings with it a set of challenges. The increased risk of loan defaults and the necessity for greater transparency are key concerns that need to be addressed to maintain consumer trust. As the market evolves, it will be crucial for both retailers and fintech companies to find a balance between innovation and responsible lending practices. Ensuring sustainable growth in the BNPL sector will require careful management of these challenges to protect both consumers and the financial stability of the market.

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