BNPL spending set to surge as recession looms: Juniper Research

Consumer spending in the Buy Now Pay Later (BNPL) market is set to accelerate due to macro-economic factors including increased cost of living, according to a new report from Juniper Research.

The research reveals that consumer spending on BNPL services is set to grow by 291 percent in the next 5 years, reaching $437 billion annually, up from $112 billion this year.

BNPL services work similarly to layby, where payments are made in instalments, however in the case of BNPL consumers get the product first and pay for it later. The business model for this transaction relies largely on late fees, dependent on consumers not having the available funds to pay the debt back in time, as well as charging merchants transaction fees.

According to a Juniper whitepaper on the topic, “For those who borrow beyond their means, it is very easy to accumulate a large amount of debt, from late payment fees and interest rates.

"Additionally, BNPL offerings are more expensive for merchants, than credit cards, as there are higher processing fees associated. This makes it slightly more difficult for smaller businesses as, normally, profit margins make absorbing high fees less feasible.”

The users of BNPL services largely are made up of young people and low income earners.

“BNPL schemes have increased in popularity because of the minimal credit checks, ease of spreading payments and no additional fees or charges; which has made it more appealing to most than traditional credit offerings,” the report said.

Financial regulation is lacking in the BNPL market, leaving vendors largely unaccountable to act responsibly. Juniper’s report points to research from Citizens Advise in April this year which found that 41 percent of BNPL users find it difficult to make repayments, due to borrowing beyond their means.

“Although softer credit checks make credit more accessible to a wider range of consumers, it also results in a lack of consumer understanding and care, increasing the number of users falling into a debt spiral.”

According to research author Dominique Tetnowski,“Though the future of the market seems unclear given the plethora of impending regulatory changes, enforcing legislation for eligibility checks will ensure the market develops securely.”