BNPL firms snag consumers at checkout: J.D. Power

Dive Brief:

• The share of U.S. consumers with an active buy now, pay later account reached 22% in January, up from 18% in October 2022 and 14% in July 2021, according to a J.D. Power report released Thursday.
• Nearly one-third (29%) of survey respondents said they became interested in a buy now, pay later service after it was offered as a payment option at checkout.
• Less than one-fifth of respondents said they heard about the service from family and friend recommendations (16%) and social media (14%), according to the survey.

Dive Insight:

J.D. Power said in its website post about the report that it was based on data from its annual U.S. Retail Banking Satisfaction Study, but it wasn’t clear if that was the study from last year or this year. A spokesperson for the research firm wasn’t immediately able to comment.

The J.D. Power report noted that card issuers and BNPL companies are in fierce competition at the checkout. Card issuers have jumped to give cardholders options that look more like BNPL as that trend has ballooned. That might include offering customers the option to convert their card balances to fixed, monthly payments, albeit for a fee, or giving them a lower, fixed annual percentage rate.

But if card-based installment payment plans aren’t at the forefront of consumers’ minds as they’re transacting, cardholders are more likely to try options from BNPL-specific providers, J.D. Power said.

For their part, BNPL companies are aware of the importance of having a presence at checkout. Though Affirm may no longer have BNPL exclusivity with Amazon, that BNPL provider is angling for more business from the e-commerce behemoth by maintaining a competitive position, Affirm’s CFO has said.

While the J.D. Power report sheds light on how consumers learn about installment payment services, the Consumer Financial Protection Bureau’s recent research offers a look at the impact these programs have on consumers’ finances. According to the CFPB’s report released earlier this month, only 17% of consumers with a credit record had also used a buy now, pay later loan in the year before they were surveyed.

Consumers earning between $20,001 and $50,000 and women, Black and Latino consumers were more likely to use installment payment services, according to CFPB research.

As the use of buy now, pay later options has increased among consumers in recent years, the installment payment providers are now trying to establish steadier financial footing following a high-growth period. 

During the fourth quarter of 2022, Minneapolis-based Sezzle generated $600,000 in net income, up from a $25.9 million net loss in Q4 2021. And although the company reduced its North American employee headcount by 20%, it still reported a net loss of $38.1 million last year.

Meanwhile, San Francisco-based Affirm ended its services in Australia, which meant the company would only operate in the U.S. and Canada.

Klarna said its gross merchandise volume in the U.S. surged 71% last year over 2021, meaning its U.S. business overtook that in Germany. In its shareholder letter, the BNPL provider said its fiscal year 2022 revenue rose 21% year-over-year, but the company reduced its workforce in May and September last year.