CFPB Data Confirms BNPL’s Positive Impact on Credit-Constrained Consumers
The appeal of stretching out one’s cash flow — making payments over time rather than all at once, and pressuring bank accounts or boosting interest-bearing debt levels — has long been a highlight of PYMNTS’ continuing reports on buy now, pay (BNPL) later plans.
Through the past few years — which have been marked by high inflation — almost two-thirds of BNPL users have said that they use the offering as a way to manage cash flow, according to PYMNTS Intelligence. And more consumers use BNPL strategically than out of necessity. The average transaction among BNPL users is $926. PYMNTS research also found that a significant majority of consumers are happy with these plans, as more than three-quarters of BNPL users reported high levels of satisfaction.
The CFPB Weighs In
On Monday (Jan. 13), the Consumer Financial Protection Bureau (CFPB) released data on the use of BNPL among different demographics and credit profiles, with a nod toward the growth in usage among younger consumers and by consumers with relatively high card debt, which itself would otherwise constrain their ability to spend.
In tandem with the release of the report, and as PYMNTS reported on Monday, the CFPB called for more research into the loans, stating that “the importance of BNPL in the credit profiles of BNPL borrowers underlines the need for further research to understand how this growing financial product causally impacts borrowers’ financial health.” The data from the bureau found that more than 60% of BNPL users had simultaneous BNPL loans.
Overall, more than 20% of consumers used BNPL loans — and as recently as 2022, 20% of those borrowers took on more than one BNPL loan per month, which translated to an average loan origination per year to 9.5. Previously, that tally had been 8.5.
Borrowers Skew Younger
The data show that younger borrowers — particularly those aged 18-24 — were users of note for BNPL. Installment loans comprised 28% of their unsecured debt, compared to an average of 17% across all cohorts.
The appeal among younger consumers has been spotlighted by PYMNTS Intelligence, which found that 46% of Generation Z and 47% of millennials had used BNPL through the past year. And although nearly one-quarter of consumers (23%) would use BNPL for everyday items, this share rose considerably for Gen Z consumers (28%) and millennials (35%).
In December, PYMNTS Intelligence found that millennials, lower-income consumers and those living paycheck to paycheck are most impacted by cash flow shortages.
More than one-third (35%) of consumers experience those pressures. Millennials are the most affected generation, with 17% experiencing frequent cash flow issues. By comparison, only 6.6% of baby boomers and seniors reported frequent cash flow shortages. The disparity is even greater when looking at income: 18% of consumers making less than $50,000 a year report frequent cash flow shortages, while only 9.9% of those making over $100,000 said the same.
The bureau’s report detailed that roughly two-thirds of BNPL loans went to borrowers with subprime or deep subprime credit scores, where approval rates for BNPL loans topped 78%. Those borrowers were likely to hold more credit card debt than other cohorts.
The information comes as PYMNTS has estimated that credit card debt among financially struggling borrowers has topped $7,000, higher than the average $5,000 held across all cohorts (and many of those struggling individuals have been approaching, or hitting, card limits with some regularity).
Interestingly, the CFPB’s reported noted the relatively low default rates for BNPL loans, where 2% of borrowers defaulted across all transactions from 2019 to 2022, per the CFPB data, versus the roughly 10% in credit card defaults over that same timeframe. In part, that’s due to the automatic payments, as funds are taken from accounts via a set schedule.
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