Despite having experienced rapid growth in popularity over the last several years, new data from a consumer survey finds that consumers might not fully understand how buy now, pay later services work.
Ahead of plans to launch its services in the U.S. later this spring, the survey was conducted by Zilch, the European-based BNPL company, to understand consumer sentiment around BNPL in the U.S. More than 2,000 respondents in the U.S. over the age of 18 with a minimum household income of $35,000 were surveyed in partnership with YouGov this month.
A key finding in the survey is general confusion over how BNPL companies operate and make money. In fact, 43 percent of consumers said they believe BNPL companies make money from the interest they charge consumers and 26 percent said they believe products sold through BNPL are marked up with BNPL providers collecting the difference. Another 21 percent reported they believe BNPL companies earn money through “secret, unadvertised fees” that are paid by the consumer. Meanwhile, 31 percent of respondents admitted they did not know how these companies made money.
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Overall, the findings point to a general skepticism and lack of trust in the payment option, an element that has been a major point in these companies’ messaging that strives to be a more transparent alternative for young consumers who have distrusted credit cards. When asked 25 percent of respondents said they do not trust or understand BNPL.
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At the same time, there is a misunderstanding given a crucial point of differentiation for many BNPL providers, including Zilch, who do not charge interest — further distancing themselves from credit cards that have been the cause of debt and overall poor financial well-being for so many. Still, 20 percent of survey respondents said their credit card interest rates are lower than BNPL.
Philip Belamant, chief executive officer of Zilch, pointed out that “according to the Consumer Financial Protection Bureau, Americans paid $120 billion annually in credit card interest and fees between 2018 and 2020, equating to $1,000 each year per household.”
He added, “The fact that nearly half of consumers believe that all BNPL providers charge interest when they absolutely do not is not only concerning, but can be significantly detrimental to consumer health.”
To be considered, more than once in the survey consumers showed the high value they place on credit card points and cash back rewards. Nearly half of consumers surveyed indicated they would opt to use a credit card over BNPL because they like earning points or cash back rewards. And these incentives were shown to be important to consumers again when asked about hesitations around using BNPL where 25 percent of consumers again cited a lack of rewards points or cash back like credit cards.
While misconceptions about BNPL found in the survey included respondents from all generations, confusion was highest among older consumers. For example, 47 percent of respondents over the age of 55 said they believe that BNPL can charge extra fees, compared to only 25 percent of consumers ages 18 to 35.
Still, more than half of respondents (54.2 percent) said they have made the decision to use BNPL for a purchase that they would have otherwise paid for with a credit card.
When asked about loyalty to a particular BNPL provider, only 13.3 percent said they have a specific company that they always use. In comparison, 18.6 percent of respondents said they use “whatever option was available on a retailer’s website” when making a purchase.
Overall, while the survey showed some ongoing loyalty to credit card use, it also found respondents to be unhappy with current credit card options that have “interest rates that are too high (56 percent)” and annual fees (36 percent). As BNPL companies actively work to provide consumers with a more transparent alternative, the findings might indicate there is still an opportunity to win these shoppers by providing information on the difference.
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