The outstanding debt of buy-now-pay-later (BNPL) customers in the United States is expected to reach $15 billion by 2025, according to a report released on Thursday by management consulting firm cg42.
During the COVID-19 pandemic, homebound consumers opted for online shopping, prompting digital payments titans such as Block Inc and PayPal Holdings Inc to expand further in the sector.
However, the current uncertainty in the macroeconomic outlook caused by geopolitical turmoil, rapidly rising interest rates, and hot inflation has taken a toll on the once-promising sector.
After a stellar 2021, the valuations of some of the biggest firms in the sector ffell this year. Affirm Holdings Inc shares have dropped more than 70 per cent, while Swedish rival Klarna has reduced its valuation by more than 80 per cent to $6.7 billion from $46 billion last year.
However, the study predicts that the number of BNPL customers in the United States will increase by 27 per cent between 2022 and 2025.
Approximately 84 per cent of the more than 2,000 people polled said the BNPL model allows them to buy items they would not be able to buy otherwise, while 39 per cent said they "regularly" pay late fees due to missed payments.
"Users also put their BNPL payments on their credit cards, setting up a very scary double whammy effect in which individuals who are laid off will get hit with double the fees and have no path to paying off their debts," said Hugh Tallents, senior partner and financial services practice lead at cg42.
"BNPL operates outside of the traditional credit system right now. People don't think of it as debt and they can't track how much they hold in aggregate."
The BNPL industry remains popular among younger consumers, many of who are struggling to save and meet their financial goals, and largely unregulated in the United States, one of its biggest markets.
(Source:www.economictimes.com)
During the COVID-19 pandemic, homebound consumers opted for online shopping, prompting digital payments titans such as Block Inc and PayPal Holdings Inc to expand further in the sector.
However, the current uncertainty in the macroeconomic outlook caused by geopolitical turmoil, rapidly rising interest rates, and hot inflation has taken a toll on the once-promising sector.
After a stellar 2021, the valuations of some of the biggest firms in the sector ffell this year. Affirm Holdings Inc shares have dropped more than 70 per cent, while Swedish rival Klarna has reduced its valuation by more than 80 per cent to $6.7 billion from $46 billion last year.
However, the study predicts that the number of BNPL customers in the United States will increase by 27 per cent between 2022 and 2025.
Approximately 84 per cent of the more than 2,000 people polled said the BNPL model allows them to buy items they would not be able to buy otherwise, while 39 per cent said they "regularly" pay late fees due to missed payments.
"Users also put their BNPL payments on their credit cards, setting up a very scary double whammy effect in which individuals who are laid off will get hit with double the fees and have no path to paying off their debts," said Hugh Tallents, senior partner and financial services practice lead at cg42.
"BNPL operates outside of the traditional credit system right now. People don't think of it as debt and they can't track how much they hold in aggregate."
The BNPL industry remains popular among younger consumers, many of who are struggling to save and meet their financial goals, and largely unregulated in the United States, one of its biggest markets.
(Source:www.economictimes.com)
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