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By Barbara O’Neill, Ph.D., CFP®

In last week’s blog post, we introduced five key “nuggets” about Buy Now Pay Later Services that Personal Financial Managers (PFMs) need to know, based on our recent webinar. The webinar described how BNPL works, user demographics, connections between BNPL and laws that protect service members from high-cost loans, and implications for military consumers.

Below is a summary of five more key “nuggets”:

  • BNPL User Demographics. More than half (56%) of BNPL users are female and 78% of young adults age 18-29 are familiar with BNPL, the highest of any age group. Industry data indicate that Black consumers are more interested in BNPL than white consumers (58% vs. 36%) and more likely to buy from a retailer that offers BNPL (37% vs. 20%).
  • Consumers Spend More. BNPL firms pay merchants at the time of purchase and merchants pay BNPL firms a “merchant discount fee” of 3% to 6% of the transaction amount, similar to a merchant’s interchange fee when consumers use credit cards. Merchants are willing to do this because consumers spend more when they do not have to pay for something in full all at once. Online retailers report less “shopping cart abandonment” with BNPL.
  • Rewards and Incentives. Since BNPL is often a substitute for credit card use, some card issuers do not allow BNPL payments. Others are creating installment pay programs of their own. Also, some BNPL firms have rewards programs (e.g., shopping cart discounts or freebies) to lure consumers who would, otherwise, get rewards for using a credit card.
  • Impact on Credit Reports. BNPL transactions were not reported to credit bureaus in the past, but this is changing as the “Big Three” credit bureaus announced plans to collect and record data from BNPL companies in 2022. Assuming consumers make scheduled installment payments on time, this should be a positive factor in their credit history.
  • BNPL and the MLA. BNPL (e.g., “Pay in Four”) loans are unlikely to run afoul of provisions in the Military Lending Act (MLA) because providers typically don’t charge interest and fees (except late fees). The biggest “issues” for PFMs to watch for with BNPL are the risks of over-extension and sustained use (e.g., multiple BNPL loans). The key take-away message for service members is to use BNPL loans thoughtfully and carefully.

Copies of the BNPL webinar slides and an archive of the recorded video are available on the event page.

Photo by AndreyPopov from Getty Images, via Canva