The use of Buy Now, Pay Later (BNPL) services, a popular payment method especially during the COVID-19 pandemic, doesn’t appear to significantly impact consumers’ credit profiles in the short term, according to a new report from the Consumer Finance Institute of the Federal Reserve Bank of Philadelphia.
The study is among the first to delve deep into the relationship between BNPL usage and traditional consumer credit characteristics. Using anonymized survey data combined with credit bureau data from 1,278 consumers, the research found that while BNPL users actively pursue more credit lines, they don’t necessarily secure a significant amount more credit compared to non-users.
Interestingly, data was collected during the BNPL boom amidst the COVID-19 pandemic, shedding light on consumer behavior during a unique economic period. Despite the increased shopping intensity exhibited by BNPL users, there wasn’t a direct correlation suggesting that BNPL increases shopping behavior. Instead, the increased intensity can likely be attributed to existing demand characteristics which influenced the adoption of BNPL.
A notable observation is the credit score pattern of BNPL users. A typical BNPL user had a credit score more than 50 points lower than non-users, but still within the prime category. The report reveals that consumers with super-prime credit scores (720 or above) are about 20 percentage points less likely to use BNPL, and there’s a decreasing likelihood of BNPL usage as credit scores approach the higher ranges.
These findings are consistent with previous research from the Consumer Financial Protection Bureau, which noted that BNPL users generally had higher credit card usage rates and slightly lower credit scores.
It’s crucial for professionals in the debt collection industry to be aware of these insights. As the BNPL trend continues to grow – with usage doubling since 2021 to 8% in 2023 – understanding the credit behavior of these users can inform collection strategies and decision-making.
However, the authors of the Philadelphia Fed paper caution that broader studies with more consumers and a longer timeframe might offer different insights. As the industry evolves and the BNPL method gains traction, staying updated on such research will be invaluable for debt collection professionals.
