Reasonable Repayment Terms Drive BNPL Usage
Banking and Payments Intelligence Report
October 2023
Reasonable Repayment Terms Drive BNPL Usage
It's been several years since financial services upstarts reimagined buy now pay later (BNPL) as a point-of-sale (POS) payment method. Since then, this once-obscure way of transacting has been placed front and center at the checkout by merchants worldwide, and 28% of U.S. consumers now say they've used it at least once in the previous 90 days.
But who, exactly, are these BNPL customers and why are they choosing this form of payment over countless other options? While many reports have suggested that BNPL has been most attractive to financially vulnerable consumers who are already overextended on their credit cards, the real BNPL customer profile is decidedly more nuanced. In fact, according to findings from the J.D. Power 2023 POS Choice Satisfaction Study, BNPL is attracting consumers from across the financial health spectrum, and most consumers are drawn to it for the same primary reason—they like the repayment terms.
Repayment is Top of Mind
Both credit cards and BNPL allow consumers to make purchases they may not be able to pay for immediately. However, differences in consumer perceptions about repayment terms help explain why BNPL is attaining prominence at the checkout. One-third (33%) of consumers indicate a primary driver for using BNPL is "repayment terms are reasonable," more than any other factor and significantly more than the 6% of consumers who say it's a primary reason they use credit cards.
Having reasonable repayment terms may also explain the second most common reason consumers use BNPL: budgeting/avoiding overspending and debt. One-fourth (25%) of consumers indicate they use BNPL because it is helpful for budgeting, while only 8% say the same about credit cards.
As one J.D. Power survey respondent wrote, "[My BNPL plan] is easy to use. There are no complicated terms. It does exactly what it says it will. It's split into four payments...and that's that. No tricks, gimmicks, or little details lurking."
BNPL Isn’t Just for Those Who Are Financially at Risk
Industry watchers have been rightfully concerned about the potential for BNPL to make it easy for consumers to add to their already bloated debt loads. Fifty-five percent (55%) of U.S. consumers are currently at risk of being unable to cover their basic financial needs according to the August J.D. Power U.S. Polaris Pulse report. Rising costs and increasing debt burdens are affecting people's ability to pay, and proliferating BNPL loans could worsen matters.
Unsurprisingly, these at-risk consumers are more likely to use BNPL than others. According to the J.D. Power data, 32% of consumers at risk of being unable to cover their basic financial needs used BNPL in the previous 90 days; this is higher than the 28% usage rate among the total population.
However, these consumers are not alone in using BNPL at the POS. Nearly one-fourth (23%) of consumers who can cover their basic financial needs also use BNPL. Like their at-risk peers, they are drawn to the repayment terms and budgeting benefits, but also BNPL's low cost of use. They appear to use BNPL to purchase out of preference rather than necessity, an observation likely attributable to many at-risk consumers as well, given the relatively low loss rates on BNPL loans industry wide.
Financially Healthy Customers are Happiest with BNPL
Compared with their at-risk peers, financially healthy consumers also have higher overall satisfaction with BNPL brands and are more likely to be repeat users.
In the J.D. Power 2023 BNPL Satisfaction Study, administered simultaneously with the POS Choice Study, financially healthy consumers had an overall satisfaction score of 704 (on a 1,000-point scale) with BNPL brands. At-risk consumers, on the other hand, averaged 577.
Financially healthy consumers are also more likely to use BNPL again. More than half (61%) indicated they'd used BNPL more than once in the previous 90 days. This was 5 percentage points higher than the percentage of at-risk consumers who had used it more than once.
While the study results reveal that overall satisfaction scores and reuse rates vary significantly between BNPL brands, financially healthy consumers are happier and more likely to reuse on average. These findings indicate that BNPL has even more room to grow if lenders make targeted improvements and further accentuate dimensions of their offerings that consumers are more satisfied with.
Where Lenders Can Help
Despite using BNPL for its reasonable repayment terms, consumers want lenders to do more. They indicate that the reasonableness of terms is more important than other dimensions of the overall BNPL experience. Yet, consumers have lower satisfaction with those terms than with less important dimensions, such as the security of their account information.
BNPL lenders should do more to explain and administer their repayment terms clearly and without any surprises, particularly for consumers who are financially at risk. The study also reveals that some BNPL lenders have more work to do than others as satisfaction with the lowest-rated brands was significantly lower than the highest-rated brands.
And, not to be forgotten, other dimensions of the BNPL experience also matter to consumers. Differences between lenders vary significantly across these dimensions as well, indicating targeted opportunities exist for each lender to make improvements that drive even more satisfaction, loyalty and demand for BNPL.
Find out More
This Banking and Payments Intelligence Report is based on responses from the J.D. Power 2023 POS Choice Satisfaction Study and the J.D. Power 2023 BNPL Satisfaction Study, which included 45,768 and 4,004 responses, respectively. It is authored by Miles Tullo, Managing Director of Banking and Payments. Please contact us at the numbers below to connect with Mr. Tullo or to learn more about the underlying research.
Media Contacts
Brian Jaklitsch; East Coast; 631-584-2200; [email protected]
Geno Effler, J.D. Power; West Coast; 714-621-6224; [email protected]
