Consumers around the world are adopting buy now pay later (BNPL) services to manage the cost of their online and in-store purchases according to their own cash flow, compared to alternatives like credit cards.
A new report detailing BNPL attitudes across Europe, Asia Pacific and the US has been released by RFI Global. The report is titled ‘The Global State of BNPL: How banks and providers can champion customer interest.’
It found that instead of leading people towards a dangerous rabbit hole of debt, BNPL is helping consumers to better manage cash flow by offering short-term interest-and fee-free products, thereby avoiding revolving credit card debt and bank charges.
RFI Global’s BNPL Tracker surveys over 14,000 consumers across 11 countries in Europe, Asia Pacific and the US twice a year about their attitudes towards, and use of, financial payment services such as BNPL.
What appeals to shoppers most when they choose the BNPL option at checkout (across all markets surveyed) is: no interest charges (33 per cent), convenience (33 per cent), improved cash flow management so that they can pay other expenses (28 per cent) and helping them to budget (31 per cent).
Consumers are displaying a level of aversion to debt and do not want to buy things they cannot afford, even ranking this as one of the key reasons why they do not use BNPL.
Standard Chartered’s ‘Future Money‘ survey found that since the pandemic, people around the world were most concerned with ‘meeting their daily expenses’ (37 per cent). Rising inflation will further increase the efforts people make to better manage their money.
“The majority of BNPL users are millennials who want to manage their money more efficiently and avoid debt,” said Kate Wilson, global head of consumer credit, deposits and payments at RFI Global.
“Indeed, our research suggests that most BNPL users are averse to debt. They want to buy what they can afford and are aware of the dangers and cost of credit.
“BNPL’s simple credit model provides a convenient way for them to spread the cost of some purchases over several weeks or months in equal payments, assisting with budgeting without resorting to a loan, going overdrawn or putting the expense on credit cards. They can buy what they want when they want, and take full advantage of promotions or sale items.”
Best interests at heart but trust still to be earned
Despite BNPL’s growth, consumers trust banks more than they do the pureplay BNPL providers such as Afterpay, Clearpay, Klarna and Affirm, the RFI Global report finds. Overall they feel that the fintechs have their best interests at heart and don’t associate them with having hidden fees and charges.
Satisfaction scores tend to be high with these pureplay providers, which makes it extremely likely that they’ll use the services again.
In the UK for example, consumers surveyed feel that a BNPL service offered by a bank would be more secure (36 per cent), more widely accepted (31 per cent), and more reliable (31 per cent).
Just over half of consumers would consider a BNPL service offered by a bank extremely appealing compared to 35 per cent who rate a dedicated third party BNPL provider the same.
“The high degree of consumer trust in banks presents an opportunity for them to launch their own services,” suggests Wilson. “Some banks are already dipping their toes in – such as Barclays through its partnership with Amazon – and many more are considering the launch of BNPL services.
“To compete, banks will need to leverage their trust advantage and improve upon the focus that the fintech providers place on providing a great customer experience. They will also need to remain competitive on price and other incentives.
“Banks have a limited window of opportunity to do this before fintech BNPL brands win customer trust and loyalty themselves.”
Barriers for banks
However, the report highlighted some barriers for banks to overcome. In particular, the perception that a bank-offered service would be more expensive (35 per cent), more complicated to use (24 per cent) and would offer fewer offers and promotions (23 per cent).
There are also worries about credit score impact and hidden fees. In France for example, 45 per cent of consumers are worried that simply using BNPL might impact their credit scores (compared to four per cent in the UK and five per cent in the USA).
More than a third of French respondents (37 per cent) don’t trust themselves to make regularly scheduled payments (compared to five per cent in the UK and nine per cent in the US).