The federal government is launching a probe into the nascent “Buy Now, Pay Later” industry.
Buy Now, Pay Later — a short-term financing option that lets consumers make purchases and pay at a future date, often interest-free — is increasing in popularity. Typically offering their services at checkout, BNPL companies such as Klarna, Afterpay, and Affirm have diverted between $8 billion and $10 billion in annual revenue away from banks.
Citing concerns about “accumulating debt, regulatory arbitrage, and data harvesting in a consumer credit market already quickly changing with technology,” the Consumer Financial Protection Bureau announced on Thursday that it will “collect information” from Affirm, Afterpay, Klarna, PayPal, and Zip.
“The law requires that the CFPB monitor consumer financial markets and enables the agency to require market players to submit information to inform this monitoring,” said the agency in a statement. “The CFPB expects to publish aggregated findings on insights learned from this inquiry. Today’s orders seek to illuminate the range of these consumer credit products and their underlying business practices.”
“Buy now, pay later is the new version of the old layaway plan, but with modern, faster twists where the consumer gets the product immediately but gets the debt immediately too,” commented CFPB Director Rohit Chopra in the release. “We have ordered Affirm, Afterpay, Klarna, PayPal, and Zip to submit information so that we can report to the public about industry practices and risks.”
Nearly half (45.1%) of users said they will be paying for part — or all — of this year’s holiday purchases using BNPL. When asked to share the full list of payment methods they’ll be using, BNPL came in third place behind debit (65.7%) and credit cards (54.6%). Consumers would rather pay for holiday purchases using BNPL than cash (31.5%). Among those who plan to use BNPL this holiday season (“Holiday BNPL Shoppers”), 46.6% will use BNPL for more than half (37.8%) or even all (8.6%) of their holiday purchases.
Data also suggests that users are increasingly comfortable with the service, as 51.1% of Holiday BNPL Shoppers plan to use BNPL for more of their shopping this holiday season than they did last holiday season. While 38.9% plan to use it the same amount, only a minority (10.1%) plan to use it less. If BNPL was not an option this holiday season, those who planned to use it said they’d resort to a debit card (51.6%), credit card (49.9%), or be forced to spend less (45.8%).
“It’s become more mainstream,” explained Cardify CEO Derrick Fung as reported by CNBC. “The consumer over the last 12 months has become more compulsive and BNPL products are the result of us being locked up for too long and wanting more instant gratification.”
Beyond the new deferred payment methodology, Americans have been eager to receive short-term cash infusions in the form of government stimulus checks. A survey from Quinnipiac University in January found that 78% of Americans — including 90% of Democrats and 64% of Republicans — approved of the $1,400 checks supported by President Biden.