A Shift in the Buy Now, Pay Later Landscape
Interest bearing loans stake a claim
Buy Now, Pay Later lenders are everywhere — offering consumers a chance to take products home today and pay over time. With only 25% of the purchase price due at the time of sale, customers make the remaining payments in installments usually two weeks apart. It’s like layaway, except you leave with the product and THEN make the payments.
The BNPL space is not without challenges:
In fact, BNPL users reported higher rates of using traditional credit products, like credit cards or personal loans, than non-users. A whopping 95% of BNPL users reported also having a traditional credit product vs. 86% of non-users.
BNPL users also reported significantly higher rates of account delinquency vs. non-users. They were more than 2.5x as likely to report having any product in delinquency, with 7% of non-users reporting an account in delinquency in the year prior vs. 18% of BNPL users having a delinquent account.
Maybe stats like this explain why BNPL lender Affirm is moving to offer more interest bearing, short-term installment loans.
American Banker reports:
Affirm is now working to shift more of its volume to loans offered at interest rates up to 36%, and simultaneously experimenting with offering “merchant-subsidized” lower-interest loans under 10%, the company said. As part of that shift, Affirm has formed a partnership with FICO, with which it’s devising a “first-of-its-kind” approach for reporting its consumer loan activity to credit reporting agencies to be factored into industry credit-lending decisions.
In fact, AB says a majority of Affirms loans are now interest-bearing and Affirm is working to bolster its “Debit+” product — a physical card consumers can use to pay all at once or to apply to pay over time (with interest).
This differentiation could be a good thing for both Affirm and customers. Longer loan terms and relatively low interest rates could decrease delinquency and give customers more payment options.
It seems important, too, to note the message about the broader economy being sent by the ubiquity of BNPL:
As Rocco Pendola notes:
BNPL company Zip has experienced 95% growth in grocery purchases. More than half of the items Zip users finance are in the grocery or household category.
Another BNPL player, Zilch, says groceries and dining out account for 38% of its transactions.
This should be alarming.
Perhaps Affirm’s shift can ease this burden a bit — or maybe it will lead to the use of longer-term installment loans to cover the purchase cost of basic needs like groceries.