BNPL Isn’t Just for School Kids, and Retailers Love It

Buy now, pay later (BNPL) isn’t just for school kids. While the payment solution has thrived among a cohort of consumers who don’t have credit (for example, school kids), the payment method has also gained steam across various demographics, including older folks.

Furthermore, its growing traction extends beyond age groups and reaches beyond the borders of the United States.

BNPL Across the Globe

According to PYMNTS’ report on Tuesday (June 20), PayPal is selling more than $43 billion worth of its European BNPL loans.

The payments company revealed that it is selling loans originated in France, Spain, Germany, the U.K., and Italy to investment firm KKR.

“Buy now, pay later has become a major asset to PayPal’s checkout experience, driving engagement, payment volume growth, and repeat use while delivering high-value customers to our merchants,” said Gabrielle Rabinovitch, PayPal’s acting chief financial officer.

Additionally, she mentioned that the collaboration would enable PayPal to expedite its BNPL operations in response to the growing market demand in Europe, while also maintaining sufficient free cash flow for other strategic initiatives.

As highlighted in PYMNTS’ report last month, the earnings reports of PayPal and other BNPL service providers have demonstrated the demand for such services.

PayPal disclosed that it experienced a 70% year-over-year (YoY) surge in BNPL volumes, reaching $6 billion. In the first quarter, Block’s BNPL offering recorded $5.6 billion in volumes, an 18% increase YoY. Affirm also achieved 18%.

Read more: PayPal Selling $43 Billion in EU BNPL Loans to KKR

Why BNPL Thrives Among Young

One of the primary reasons why BNPL has thrived among younger consumers is the financial flexibility and convenience it offers. Traditional credit cards often come with high interest rates and strict repayment terms, making them less appealing to individuals seeking budget-friendly options. BNPL services, on the other hand, provide the flexibility to split purchases into smaller, interest-free installments, thereby enabling consumers to manage their finances more effectively.

Another major factor contributing to the popularity of BNPL among younger consumers is the straightforward and swift approval process — a feature traditional credit applications and credit checks lack.

Recent research conducted by PYMNTS has shed light on the purchasing behavior of Gen Z and millennials when it comes to BNPL. The study indicates that one of the notable use cases for BNPL among these consumers, especially the younger demographic, is for paying for groceries.

According to the PYMNTS and i2c study, “The Credit Economy: How Younger Consumers Make Credit Decisions,” over 10% of BNPL users’ most recent transactions using this payment method were for groceries.

Within the surveyed group, 15% of millennials who use BNPL reported their most recent BNPL transaction was for groceries. Similarly, 14% of Generation X consumers also indicated their last BNPL transaction was for groceries.

And based on data from Square, Gen Z and millennials continue to play a crucial role in the growth of luxury brands, with Gen Z being the fastest-growing segment. Furthermore, workwear items such as dress shirts experienced a 19% increase in sales, while oversized blazers saw a surge of 44%, and dress sneakers rose 40%.

Other Generations’ BNPL Use

Mariano Gomide de Faria, co-founder and co-CEO of VTex, an eCommerce platform, explained to Modern Retail that retirees may find installment payments appealing due to the constraints of living on a fixed budget.

Additionally, BNPL offers an appealing alternative to traditional credit cards or loans. It provides them with the ability to make necessary purchases without incurring high interest charges or long-term debt commitments on big-ticket items.

But does BNPL standup during times of inflation?

You bet.

During periods of inflation, BNPL has still appealed to consumers as BNPL allows them to make essential purchases without depleting their savings or being heavily impacted by inflation.

This has become particularly evident among shoppers aiming to make luxury-level purchases, as higher-end stores now provide financing options. Solidifying this notion is Afterpay, which has  witnessed a doubling in the number of designer brands available on its app from 2021 to the first quarter of 2023.

Among designer purchases, millennials and Gen X constitute about three-quarters of the consumer base, while Gen Z’s share has increased from 13% to 16% within a year.

However, this does not imply that Gen Z does not use credit when it is available to them.

Gen Z Isn’t Shading Credit

According to a PYMNTS report, credit continues to serve as a crucial lifeline for Generation Z, if they can get access to it.

In line with that, PYMNTS data indicates that younger consumers, particularly those belonging to the generation born towards the end of the millennium until around age 12, use their cards extensively to fulfill their everyday commerce requirements.

However, the data also reveals that 29% of Generation Z either lacks knowledge about their credit score or does not have a credit score at all.

Read more: PYMNTS Data Shows Gen Z’s Embrace of Credit — When They Can Get It