As the 2024 holiday season unfolds, consumers increasingly turn to Buy Now, Pay Later (BNPL) services to manage their expenses as credit card interest rates soar. Industry experts note that credit card annual interest rates hit record highs earlier this year and have remained high. This has led shoppers to seek more affordable ways to distribute their payments over time. BNPL options are gaining traction, especially among younger and financially less established consumers, because these plans often do not require a credit check and are interest-free.

However, it’s important to note that while many BNPL plans do not charge interest, some come with interest fees. Leading BNPL providers like Affirm, Block’s Afterpay, and Sweden’s Klarna are optimistic about increased usage of installment payment methods this shopping season.

Key Takeaways

• Market Growth and Adoption: The BNPL market has experienced significant growth, with a valuation increase from $87.2 billion in 2020 to $179.5 billion in 2022. It is projected to reach $3.27 trillion by 2030. In the U.S., BNPL adoption is rising rapidly, representing 22% of global users in 2024, with a 56.1% growth over the previous year.
• Consumer Preferences and Seasonal Trends: BNPL spending during the holiday season is expected to reach $18.5 billion in 2024, reflecting a 27.6% increase from 2022, driven by economic challenges, online shopping trends, and retailer promotions. Younger consumers, including Gen Z and Millennials, are the primary users, with projected adoption rates reaching 47.4% and 40.6% by 2025.
• Comparison with Credit Cards and Emerging Trends: The high average annual interest rate on credit cards peaked at 20.79% in 2023, making BNPL an appealing alternative for consumers seeking interest-free payment options. Traditional financial institutions, such as CitiBank, are introducing services similar to BNPL, highlighting the growing influence of this payment model.
• Challenges and Regulatory Oversight: Despite its benefits, BNPL poses risks such as overspending, lack of comprehensive consumer protections, and potential credit score impacts from missed payments. Regulatory authorities, including the CFPB, are implementing rules to enhance transparency and protect consumers, while retailers increasingly adopt BNPL to attract shoppers.

Rapid Growth and Rising Adoption of BNPL: Market Trends and Consumer Behavior

The BNPL market has witnessed substantial growth in recent years. 2020, the market was valued at $87.2 billion, which will increase to approximately $179.5 billion by 2022. Projections suggest that by 2030, the market could reach a valuation of $3.27 trillion.

In the United States, BNPL services have gained significant traction. As of 2024, about 1 in 5 BNPL users reside in the U.S., accounting for approximately 22% of all users globally. This represents a 56.1% increase over the previous year, indicating rapid adoption among American consumers.

The average annual interest rate on credit cards reached a record high of 20.79% in August and has remained high at 20.42% this month. Before March 2023, when it first crossed the 20% mark, the average rate was consistently in the mid to high teens from 2020 through 2022. Comparatively, BNPL seems a much better option for consumers shopping this season.

According to a recent report, BNPL spending on Cyber Monday alone could be around $993 million, setting a new single-day record.  Overall, the holiday season’s BNPL volume is projected to rise to $18.5 billion, reflecting a 27.6% increase compared to 2022. This growth can be attributed to economic concerns, the shift toward online shopping, and retailer promotions that encourage using BNPL options.

While BNPL spending is not expected to surpass credit card usage soon, it has certainly caught the attention of traditional banks. For instance, Citi Bank now provides a service similar to BNPL, allowing customers to divide their purchases into installments.

A recent survey, which included over 1,000 U.S. consumers, revealed that 46% intend to use a major credit card for their holiday shopping this year, while 42% plan to use a debit card. Participants could choose more than one payment method for their responses. Notably, BNPL was not listed as an option in this survey.

Economic challenges are prompting consumers to seek flexible payment solutions to avoid high-interest debt, while the convenience of online shopping paired with BNPL integration at checkout further drives adoption. Additionally, exclusive retailer promotions offered through BNPL providers add to its holiday appeal.

BNPL services are particularly popular among younger consumers, with Gen Z and Millennials representing the primary user base. Gen Z’s adoption rate is projected to grow from 36.8% in 2021 to 47.4% by 2025, while Millennials’ usage is expected to increase from 30.3% to 40.6% over the same period, as highlighted by Exploding Topics. This trend stems from younger generations’ comfort with digital financial tools and the accessibility of BNPL services, which often have less stringent credit requirements than traditional credit cards.

The appeal of BNPL lies in its benefits, including interest-free payment plans that make purchases more affordable and the ability to manage budgets by spreading payments over time. Additionally, BNPL allows consumers to obtain items immediately without waiting to save the full amount. However, the model is not without challenges. The convenience of deferred payments may lead to overspending, and the lack of comprehensive regulation in the BNPL industry raises concerns about inconsistent consumer protections. Furthermore, missed payments can impact credit scores, even though most BNPL providers do not report to credit bureaus.

Regulatory authorities are beginning to address these issues. In the U.S., the Consumer Financial Protection Bureau (CFPB) has introduced rules to enhance consumer protections, requiring BNPL providers to offer transparent disclosures and improve dispute resolution processes.

Retailers are also capitalizing on the popularity of BNPL by integrating it into their offerings to attract more customers and increase sales. A survey found that 43% of shoppers consider the availability of pay-later options when deciding where to shop, demonstrating the influence of BNPL on purchasing behavior.

Conclusion

Buy Now, Pay Later (BNPL) services have emerged as a compelling payment solution during the 2024 holiday season, driven by rising credit card interest rates, shifting consumer preferences, and growing adoption among younger demographics.

The flexibility and affordability of BNPL options appeal to those seeking to manage budgets without incurring high-interest debt. While BNPL is gaining traction, it poses challenges, such as overspending risks and evolving regulatory landscapes. As the market expands and traditional financial institutions introduce similar models, BNPL is set to play an increasingly significant role in shaping consumer spending habits, particularly during high-demand periods like the holidays.