Modern Shopping: Why Buy Now, Pay Later is Sweeping the Scene
Buy Now Pay Later (BNPL) Options Gaining Popularity Over Traditional Credit Cards - Here's the Explanation
In today's fast-paced world, consumers crave flexibility, budgeting assistance, and financial security. And it's high time retailers cater to these needs. But with high-interest rates and late fees looming over traditional credit cards, they're simply not cutting it for many shoppers. A recent survey influenced by Sezzle and Retail Dive's studioID shines a light on the growing preference for Buy Now, Pay Later (BNPL), also known as Pay in 4, over credit cards as a fair, pocket-friendly payment method.
Here are five compelling reasons why consumers are riding the BNPL wave:
1. Budget Mastery and Cash Flow Smoothing
Responsible spending is reigning king when it comes to BNPL use. Around half of consumers turn to it for budgeting assistance and cash flow support.
BNPL offers a lifeline, providing consumers with stable payback schedules that align with their cash inflows. This way, they can ensure they always have enough cash on hand when they need it. Imagine BNPL as an additional budgeting tool — consumers can divide their payments to match their spending habits week to week, or month to month.
In some situations, consumers can even negotiate a delayed payment without punishment. As Nancy Eichler, Sezzle's new senior vice president of marketing, poignantly puts it, "Can you imagine asking a big credit card company to help you out by delaying your payment by a few days, with no questions asked? Do you think they would?"
2. Evading High Interest and Fees
Credit card usage often means shelling out interest if you can't sweep the balance in one go, or fees when payments get delayed. Statistics from Transunion reveal that the average consumer's credit card balance escalated from $5,795 in January 2023 to a staggering $6,295 in January 2024. Since 2010, credit card issuers have steadily increased late fees, raking in an astounding $14 billion in 2022, accounting for more than 10% of the $130 billion in interest and fees consumers paid.
In contrast, many BNPL platforms offer consumers interest-free payments if they meet their deadlines. According to the survey, 32% of consumers utilize BNPL to skirt interest for their purchases. The current average credit card interest rate hovers around 22.63%, while Sezzle users enjoy 0% interest when their payments are on time, with over 94% making payments ahead of schedule.
Platform features can also help users avoid oversights, with reminders sent through push notifications, texts, and emails to minimize forgotten payments and late fees.
3. Cutting Back on Credit Card Usage
For approximately 28% of survey respondents, BNPL is their chosen method to step away from credit cards and alleviate concerns about:
- Data breaches
- Accruing debt
- Controlling spending
- Juggling large monthly bills
Credit cards come with spending caps established by the lender, which can remain stationary. "With a credit card, after you pay down your $1,000 limit, you instantly bounce back to the same $1,000 credit limit, which can trigger impulsive spending," Eichler explains. BNPL, on the other hand, keeps a closer eye on spending, with the objective of helping consumers manage their finances more responsibly. For instance, if a consumer struggled to make their previous BNPL payment, their spending power could momentarily decrease to prevent them from over-extending themselves.
4. Escaping Debt Traps
BNPL sets the consumer up for responsible, structured, yet flexible repayment plans, allowing them to dodge long-term debt and ballooning balances characteristic of credit cards. Around 27% of respondents rely on BNPL to maintain their footing and avoid sliding down the debt rabbit hole.
Most (87%) survey respondents affirm that they don't grapple with making their BNPL payments on time, opting for mindful purchases and timely repayments. Credit cards, however, may not offer the same relief, as the minimum interest payment calculator from Bankrate reveals. For instance, a whopping $500 balance with an average interest rate of 22% would accumulate $279.81 in interest over 52 months if only the minimum payment ($15/month) were made.
5. Building a Stronger Credit History
Finally, a quarter (25%) of surveyed consumers employ BNPL to create a positive credit history by reporting on-time payments to credit bureaus. Sezzle, for example, allows users to opt-in to link their repayment history with credit bureaus and improve their credit standing over time.
Eichler expounds, "This enables more consumers to acquire a positive payment record that can bolster their credit score and boost their chances when applying for future credit or loans."
The Power of Choice: BNPL is the Key
Offering BNPL as a payment option is all about providing flexibility for consumers to make responsible, within-means purchases. Eichler emphasizes, "By offering BNPL, retailers can arm consumers with another essential tool to add to their wallets, and it's becoming increasingly necessary. If you fail to provide access to your products using the payment method and BNPL platform preferred by the consumer, you're denying them the opportunity to buy in the manner that works best for them and are simultaneously missing sales."
Learn more about the advantages of BNPL for both merchants and consumers.
- Consumers are increasingly turning to Buy Now, Pay Later (BNPL) options, such as Pay in 4, as a budget-friendly and fair alternative to credit cards for purchases.
- BNPL offers consumers a lifeline by providing stable payment schedules that align with cash inflows, helping consumers manage their finances more responsibly.
- Many BNPL platforms, like Sezzle, offer consumers interest-free payments when deadlines are met, unlike traditional credit cards with high interest rates and fees.
- A significant number of consumers use BNPL to step away from credit cards and alleviate concerns about data breaches, accruing debt, controlling spending, and juggling large monthly bills.
- BNPL allows consumers to build a positive credit history by reporting on-time payments to credit bureaus, such as Sezzle that allows users to opt-in and link their repayment history to improve their credit score over time.
