Rising Consumer Use of Installment Plan Platforms Masks Household Financial Health
Although the concept of “Buy Now, Pay Later” (BNPL) has been around for many years, the “option to pay in installments using short-term loans” exploded during the pandemic. Since 2020, the BNPL market has grown each year and is projected to reach almost $700 billion globally by 2028. U.S. consumer spending has been “resilient in the face of stubbornly high inflation,” but the lack of disclosure by BNPL platforms is “masking a complete picture of the financial health of American households at a time when cracks are starting to form. Initial signs began to surface when Americans began falling behind on auto loans, then “credit-card delinquency rates reached the highest since at least 2012, with the share of 30, 60, and 90 days late all on the upswing.” More recently there have been increasing signs that consumers are struggling to afford their BNPL debt, too. Efforts to regulate the industry currently remain at a stalemate since “BNPL behemoths say credit agencies can’t handle their information — and that releasing it could harm customers’ credit scores, which are key to securing mortgages and other loans.” Apple became the first major BNPL provider to furnish transaction and payment data earlier this year to Experian of its Apply Pay Later transactions, but the information won’t be used for consumer credit scores. In the meantime, the continued lack of transparency “has researchers at the Federal Reserve Bank of New York, which publishes a comprehensive quarterly report on the $17.5 trillion in household debt, convinced they’re missing some of what’s happening in the economy.”