What You Need to Know

BNPL usage hit an all-time high on Cyber Monday 2024, registering a spend of $991.2 million (a 5.5% year-over-year increase), according to Adobe Analytics data. The trend is in line with Splitit and PYMNTS research last November that found two-thirds of consumers plan to use BNPL payment options for gifting this holiday season (with 38% intending to use it to spend on themselves).

This presents a huge opportunity for merchants, especially those in ecommerce, as BNPL is primarily used in online shopping. However, industry experts caution that while BNPL offers flexibility for budget-stretched consumers, it carries financial risk, especially for those who rely most on BNPL services.

Let’s explore the impact of BNPL below. Learn why consumers increasingly prefer this payment option, which consumers are more inclined to use it, and where BNPL spending is happening. I also discuss what challenges and opportunities will be for the retail industry.

The Rise of BNPL in Holiday Spending

BNPL has been gaining momentum since 2021 when it registered a 102.3% increase in BNPL users from previous years. By 2026, forecasts show almost 40% of US internet users will use a BNPL solution, further stressing how the payment method is edging further into the mainstream.

For the holiday season, the rise of buy now pay later can be attributed to consumers wanting greater flexibility for their shopping in light of persistent inflation and credit card interest rates being higher than ever. Adobe Analytics projected that American shoppers, carrying more debt, will heavily rely on buy now pay later holiday offerings from retailers, increasing usage by 11.4% the previous holiday season.

Shoppers say their main reasons for using BNPL are to free up cash (22%) and to purchase something they couldn’t afford otherwise (19%). BNPL services let shoppers expand purchasing powers by allowing them to pay for their purchases in monthly installments (3, 6, 9, and 12 months) usually with zero to minimal interest.

Impact of Buy Now Pay Later Holidays​ on the Retail Industry

Retailers should take note of the subsequent rise of BNPL preferences for holiday spending; a study shows that those that have increasingly adopted BNPL have proven they can convert more window shoppers and encourage customers to check out with fuller carts.

How does BNPL work during the holidays?

Knowing that pay later options are available in the merchant’s store drives higher spending, as more than one in four shoppers who use the financing option before checking out tend to buy more, per PYMNTS.

The same study clearly shows that 30% of consumers say they use BNPL more heavily during the holiday season than the rest of the year. And 43% of holiday shoppers (60 million U.S. consumers) are heavily influenced by BNPL holiday offerings when selecting merchants.

When it comes to consumers’ dependence on BNPL options for their holiday spending, the same study revealed the following:

• Nearly one in five anticipated using more than 60% of their total holiday spending for pay later methods.
• The average buy now pay later holiday shopping​ consumer estimates that 36% of their holiday purchases would be financed by BNPL options.
• Around half of all holiday shoppers expected to go for BNPL financing between 20% and 60% of their purchases.
• Only 6.4% of holiday shoppers anticipated financing nearly all their purchases with pay later options.
• Just 5.4% did not plan to finance any holiday spending.
• Consumers were likely to use BNPL for bigger expenses, according to a Zip holiday spending survey.

The timing of the offering also matters. Most shoppers (62%) prefer to know if a pay later solution is offered before deciding what to buy, rather than after making the purchase. Ninety percent of those surveyed that do not use this financing option would be more likely to use them if offered during the purchase journey. Early promotion of pay later plans in the shopping journey is helpful for attracting new customers.

Who uses BNPL during the holidays? BNPL Use Cases

Data shows that people across all age groups are more likely and open to use pay later options for their holiday spending. The same PYMNTS study revealed which demographics are more likely to leverage buy now pay later holiday shopping payment options for giving gifts to others and themselves:

• Parents are prone to leverage the pay later options for holiday spending. Sixty-seven percent, or two in three parents, considered pay later solutions for their holiday purchases.
• Two in five millennials were highly likely to use pay later plans for holiday shopping, while 34% of Gen Z intended to use pay later options outright.
• An interesting thing to note is that 6.5% of shoppers who had not yet used pay later plans expected to do so during the holiday season, with an additional 17% considering it.

Knowing which age groups are likely to be swayed or enticed to spend (and spend more) because of holiday pay later options fuels customer acquisition, drives retention, and boosts holiday sales. It also reveals that the majority are interested in financing some, but not all, of their holiday purchases through BNPL.

Leverage the convenience and financial flexibility these pay later solutions offer to convert undecided customers and those that wanting to maximize gifting during the season.

Are there any risks associated with BNPL?

Even as holiday shopping is made easier and more financially flexible with BNPL, it does come with risks. More than half (56%) of BNPL users say they have encountered at least one problem, according to a Bankrate survey.

Overspending (29%), missing a payment (18%), and difficulty returning items or getting a refund (18%) are among the top problems that users have experienced. A smaller number of users also said they regretted a purchase (17%) or felt dissatisfied with at least one purchase (17%).

Consumers perceive BNPL solutions as a better (and safer) alternative to credit cards. Rising interest credit card rates are one of the reasons why consumers prefer to take advantage of BNPL offerings instead of swiping their cards. The average annual interest rate on a credit card rose to a record high of 20.79% in August 2024 and remained elevated at 20.42% as of November, according to Bankrate.

However, industry experts warn that consumers might become quickly overextended financially, fail to make payments, land in trouble with debt collectors, and ruin their credit. BNPL services had been loosely regulated until the Consumer Financial Protection Bureau issued a rule in May that classifies BNPL lenders as credit card providers. This provides consumers with additional rights and legal protections, like the right to dispute charges and demand a refund after making a return.

The New York Fed’s monthly Survey of Consumer Expectations, which asks consumers to estimate the probability of becoming loan delinquent in the next three months, was 13.6% in August. This is the highest since the spike at the onset of the COVID-19 pandemic. The figure is even higher (19.5%) for those with annual incomes under $50,000.

There is much to be seen on how BNPL payment collections will fare after the holiday season, but the strong usage of pay later options during the Cyber Weekend indicates consumers stretched their budgets by opting for BNPL for gifting during the season.

Frequently Asked Questions (FAQs)

Which BNPL providers are popular for holiday shopping?

The biggest BNPL providers are Affirm, Afterpay, and Klarna.

Can BNPL impact my credit score?

Yes, it can. Some BNPL services require hard credit checks, while others perform soft inquiries. If a provider reports activity to credit bureaus, it can impact your credit score.

Are there hidden fees with BNPL services?

There are fees for BNPL users who fail to make payments on time, such as late charges, overdraft fees, and interest payments. There are no fees involved for those that can pay monthly payment installments in full and on time.