The holiday season is characterized by joy, laughter and, unfortunately for some, financial strain due to gift shopping. Adobe Analytics reported a 43% year-over-year increase in buy now, pay later (BNPL) purchases on Cyber Monday. This increase in BNPL usage was fueled by consumers making larger purchases as the number of items per order also increased by 11%. However, the growing reliance on these BNPL services, particularly within the African-American community, raises concerns about the potential financial impact.
The breakdown you need to know:
Consumers don’t always realize that BNPL, a new twist on the layaway concept, is a form of credit or loan as they continue their holiday shopping. CultureBanx reported that while BNPL services are used across all demographics, the data suggests disproportionate use among the economically vulnerable. According to research published by the Federal Reserve Bank of New York, many BNPL users are financially fragile.
The African-American community, in particular, appears to be disproportionately affected by BNPL. According to the Consumer Financial Protection Bureau (CFPB), Black consumers are about 63% are more likely to use BNPL platforms than white consumers. This statistic is alarming given the potential financial risks associated with these services. Although BNPL attracts a broad user base, including those with higher incomes and education levels, those with lower credit scores and unmet credit needs constitute a significant share of all BNPL users.
BNPL debt balancing:
Among different racial groups, black and Hispanic consumers are more likely to use BNPL services than their white counterparts. With the BNPL market cap is expected to reach $3.98 trillion By 2030, according to Allied Research, here lies the issue, because many consumers do not fully understand this new form of debt financing, it is easy to get stuck in a bad financial situation.
Currently, 27% of black households are late paying their debts. Lending Club Holiday Report found that 37% of Americans plan to use financing such as personal loans, credit cards and buy now, pay later this holiday season, up from 34% in 2021. Last year alone, Americans spent $20.8 billion through these BNPL serviceswith purchases overall growing 230% since early 2020, according to Accenture study
Buy-now, pay-later public stock prices have performed very well. Affirm’s stock is up more than 300% year-to-date.
While BNPL may offer a lifeline to struggling consumers, it also presents potential financial risks. For example, one could have multiple BNPL loans with different providers, none of which appear on their credit report, leading to the possibility of “loan stacking”, which can lead to a debt spiral. Since many BNPL services are not reported to the three major credit bureaus, this can hide a person’s true level of debt.