2023 Looms as BNPL’s Banner Year as Consumers Seek Payments Choice

The surging popularity of buy now, pay later has bucked conventional wisdom about installment lending.

“At the beginning of the BNPL boom, we heard all about how Gen X and Gen Z were the ones who wanted buy now, pay later,” Ed O’Donnell, CEO of Versatile Credit, told Karen Webster. “That’s not proving to be exactly true — there’s a broader group of customers who are looking to use that product.”

And while the conventional wisdom may hold that lower income consumers are the ones who are most desirous of BNPL, that’s simply not the case, either, said O’Donnell. In fact, the demand for BNPL has been evident among households that are earning more than $100,000.

Simply put, as O’Donnell noted, “This has really exploded across all FICO bands and wallet sizes.”

In an age where inflation is forcing us all to reexamine how we manage daily, weekly and monthly finances, having more choice in the mix — as to how we pay, and when, before the purchase is made — is critical.

Regulators Sharpen Their Focus

It’s no surprise that amid that explosion, regulators are taking a closer look at the BNPL space — and there are some observers who claim that regulatory scrutiny will have a dampening effect. The key concerns revolve around whether consumers are using — and whether lenders are extending — credit responsibly.

As O’Donnell stated, only a bit tongue-in-cheek and with the vantage point of his own 30 years in consumer lending, the first reaction of the regulators is to “always say, ‘No — this is new, we don’t need it, and everything’s fine the way it is.’”

But in reality, with the public commentary period in place, as set by the Consumer Financial Protection Bureau (CFPB), and the dedicated efforts by banks and lenders’ compliance and risk departments, the financial services industry will find a happy medium between innovation and transparency.

“The regulators will get to the right place and will understand that with the right disclosure and with the right servicing on the back end of these relationships, BNPL is a good thing for consumers,” said O’Donnell.

Consumers benefit when there’s an additional credit option that allows them to manage their cash flow more adroitly, and benefits accrue to the merchants offering the option, as BNPL can incentivize consumers to go ahead and close the sale, he said. Having BNPL in the mix will be especially valuable as credit underwriting becomes tighter in more traditional products such as credit cards, and as that debt becomes more expensive for consumers to shoulder.

The predictability of BNPL, he said, is moving the credit option to top of mind for consumers — and will conceivably incentivize them to use installment/layaway financing for larger ticket purchases (such as furniture or home repair). BNPL is also gaining ground as a favored payments choice for seasonal and recurring purchases such as sporting event tickets or healthcare.

“There’s predictability in the payment, rather than having to write a check or make a large transaction on a credit card,” he told Webster. “It’s better for the budget to make a monthly payment, and it puts consumers at ease.”

From Versatile Credit’s point of view, he said, the best way to offer credit and help merchants increase sales conversions, is to present multiple options, from traditional, private-label cards to BNPL, with side-by-side comparisons of monthly and overall costs.

The data-driven and platform model, he said, along with “cascading credit,” can help personalize lending options so that individuals make the decision that is right for them. That approach can pay dividends, illustrated by the fact that Versatile Credit has, according to O’Donnell, just notched “the greatest growth year in our history.”

Looking ahead, 2023 is ushering in another year of strong growth for BNPL, as there’s enough pent-up demand for still-healthy spending by consumers.

“Consumers are going to become more comfortable as they understand that there’s another option,” he told Webster, “and buy now, pay later will be a good choice to have.”