Is Buy Now, Pay Later Good for Young Americans?

Findings from SoFi’s new Future of Money Institute highlight generational divides in how Americans approach BNPL services

The Rise of BNPL

This product can be yours for just four easy payments of $19.95. Millennials and Gen Z heard the pitch for Buy Now, Pay Later (BNPL) going all the way back to 90’s-era infomercials.

But over the past few years, BNPL has exploded in size and popularity as a new generation of financial firms have developed products for online shoppers. Just recently, even Apple got into the BNPL game with the Apple Pay Later product that will allow Apple Pay customers to pay off their purchases in a series of installments. According to industry data from late last year, BNPL payments are expected to grow 66.5% on an annualized basis to reach over $82 billion this year.

But there’s no such thing as a free lunch or a free loan. Typically, BNPL offers come with interest payments and late fees if the consumer can’t pay when their installments are due. Since BNPL products fall in what’s been called a regulatory “gray area,” some worry that consumers may not enjoy all the same protections that traditional products like credit cards provide.

Given the rapid growth of BNPL and the controversies associated with it, we wanted to know what Americans really think about this increasingly popular payment option. So the Future of Money Institute surveyed US consumers to get a read on their current views.

The data shows two Americas—but not Red and Blue. In this case, the dividing line is generational. Millennials and Gen Zers are warmly embracing BNPL services—but their parents’ generation, not so much. And in what could be chalked up to the folly of youth, an awful lot of younger consumers are getting tangled up in some of BNPL’s complications.

Here are some of the key findings:

•  1-in-3 (33%) Americans report that they have used a BNPL service before, but there is a big gap between the generations. Nearly half of younger Americans ages 18-34 (47%) report having used BNPL services. Those over the age of 55 are much less likely to have used the offering—less than one-in-four.

•  Unfortunately, a lot of those younger Americans using BNPL services aren’t always able to repay on time. In fact, a full 50% of 18-34 year olds who have used BNPL say they have missed a payment, which usually means they were assessed late fees on top of their base payments and interest. That can add up and make BNPL more expensive than credit cards or other payment options.

•  Americans are split on their views towards the impact of BNPL services on consumers: 44% say it’s positive, 31% say it’s negative, and 25% are neutral. Most Americans (54%) believe the trend is positive for online retailers.

•  Americans are much more likely to believe BNPL services will become more common over the next 5 years (41%) rather than less common (11%).

What does the data tell us?

The numbers are clear that BNPL is popular among younger Americans who are driving the adoption of e-commerce of e-commerce in the U.S., especially since the onset of the COVID-19 pandemic. But the startlingly high rate of missed payments raises a big red flag. While BNPL can be a convenient and even cost-effective way for consumers to manage their finances, they have to understand exactly how the products work and understand the risks involved. Buying things you can’t afford in the hope that you’ll be able to pay them off later can be a dangerous plan financially.

If BNPL is going to be continue to be a part of the consumer finance landscape (and the data suggests that it will), then Americans of all ages will need to become more discriminating shoppers, reading the fine print before clicking the Buy button.

Where is BNPL heading?

While our data suggests Buy Now, Pay Later will become more prominent in the short term, the longer-term future of BNPL still looks uncertain. For one, rising interest rates and missed payments are posing business challenges for many BNPL providers. And in recent months, BNPL has also come under greater scrutiny from state and federal regulators , who are pushing for greater consumer protections. But with inflation and broader economic uncertainty on the rise, consumers may be more inclined than ever to rely on BNPL services to finance everyday essentials. To help Americans take a smart approach to short-term lending, SoFi’s Future of Money Institute is committed to following the evolution of BNPL, and ensuring our members can confidently navigate the BNPL landscape.

About SoFi’s Future of Money Institute
The concept of money is changing as it always has throughout history. From bartering to the emergence of coins to the use of paper to electronic and now digital, the concept of currency has gone through episodic transformations and there are only signs of continued, even accelerated change. As a finance company and now an official bank, we want to continue tracking how the concept of money changes and be part of those conversations. Hence, the introduction of the Future of Money Institute.

The Future of Money Institute (FOMI) will utilize original research as well as existing studies and internal data to examine trends within the financial industry and engage young Americans on what these trends may mean for them, their communities and the economy overall. We believe that to help our members get their money right, we need to understand the constantly changing financial environment.

Disclosure
Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision. The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.

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