Findings from a new survey on consumer sentiments and understanding around Buy Now, Pay Later (BNPL) illustrates that while BNPL is growing in popularity among consumers with 31 per cent of consumers having used the service, there are still several misconceptions and a prevalent lack of understanding around how BNPL companies operate, compete with traditional credit card companies, and serve consumers. The survey was conducted by Zilch, a next-generation BNPL provider that is launching in the US later this spring.
The data demonstrates a widespread lack of understanding around how BNPL companies make money. Nearly half (43 per cent) of consumers believe these companies make money on the interest they collect from consumers. More than one in four – 26 per cent – of consumers believe that products sold through BNPL are marked up with BNPL providers collecting the difference in cost, and another 21 per cent said BNPL firms earn money through secret/unadvertised fees that are paid by the consumer. A total of 31 per cent of respondents said they don’t know how BNPL companies make money.
“It’s a crucial point of differentiation that many BNPL providers, including Zilch, do NOT charge interest while credit cards stand to jeopardise the financial well-being of consumers with high interest rates and balloon payments,” says Philip Belamant, CEO of Zilch.
“According to the Consumer Financial Protection Bureau, Americans paid US$120 billion annually in credit card interest and fees between 2018 and 2020, equating to $1000 each year per household,” Mr. Belamant 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.”
Frustrations with Credit Card Options
While credit cards are still the primary tool consumers use to finance purchases, 50 per cent of consumers surveyed said they believe consumers need options beyond credit cards for making purchases and paying for them in instalments and 54 per cent of consumers think credit card companies have too much impact on credit scores.
Increasingly high interest rates on credit cards continue to be a widespread issue. Four in ten consumers – 40 per cent – confirmed that their credit card charges an interest rate over 12.99 per cent and another 26 per cent did not know the interest rate they were being charged.
Of the respondents who said they are not happy with the current credit card options available, 56 per cent said the interest rates are too high on all credit cards. Another 36 per cent said they are not happy with the annual fees that the best credit cards charge.
Respondents also blame credit card companies for challenges in securing loans:
- Of the consumers surveyed who have had a hard time getting approved for a loan, the majority (76 per cent) blame credit cards.
- 26 per cent were not able to secure a loan because they defaulted on a credit card for a small amount (less than $2k).
- 30 per cent were not able to secure a loan because they paid their credit card bill late (less than three times).
- 19 per cent were not able to secure a loan because the vendor or merchant incorrectly charged or reported a transaction.
“Half of all respondents believe consumers need options beyond expensive credit cards which is exactly what we are trying to solve, but the prevalent confusion and lack of understanding of how BNPL companies operate in general and compared to one another is a grave concern,” says Philip Belamant, CEO of Zilch.
“Many BNPL providers, including Zilch, do not charge their customers interest or late fees and can offer a much more financially healthy approach to financing purchases. Contrary to many BNPL providers, Zilch has never charged a customer a late fee since its inception.”
Other Key BNPL Misconceptions
In addition to confusion around interest rates, additional survey findings reveal widespread confusion across how BNPL companies compare to credit companies.
When respondents were asked if they would use a credit card over BNPL, 48 per cent said no because they like earning points and/or cashback rewards from credit cards. Twenty-five per cent said they did not trust or understand BNPL, and 20 per cent said their credit card interest rate is lower than using BNPL.
When asked about hesitations around using BNPL, 25 per cent said that BNPL companies do not offer rewards points or cash back like credit cards. Sixteen percent said BNPL is not regulated and 12.7 per cent said they simply do not understand how BNPL works.
Consumers also expressed a lack of loyalty towards BNPL providers. Only 13.3 per cent indicated that they have a specific provider they always use, and 18.6 per cent of respondents said they used whatever option was available on a retailer’s website when making a purchase.
Notably, confusion surrounding BNPL remains highest among older consumers. Forty-seven percent of respondents over the age of 55 believe that BNPL can charge extra fees while only 25 per cent of consumers ages 18-34 share the same concern. In turn, only 11 per cent of respondents over the age of 55 would recommend using BNPL to friends and family compared to 35 per cent of respondents ages 18-34.
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