Buy Now, Pay Later (BNPL) exists as a lifeline for cash flow – or, perhaps, time will tell if the devil is lurking in the details, indicating a deluge of missed payments.
Recent polls from PYMNTS found that up to 14% of online consumers have used BNPL, which translates to approximately 29 million individuals across the United States. About two-thirds of shoppers say having BNPL as an option would make them more likely to buy from these retailers. The average age is 42 and 57% earn less than $ 50,000 per year. Just under half live on paychecks and struggle to pay their monthly bills.
For over 76% of these consumers, using BNPL means they can buy things more frequently than they otherwise could.
Also read: 14% of online consumers have used BNPL
Earlier this month, Credit Karma found that 44% of consumers surveyed used BNPL, but of that tally, 34% were at least one payment late. About 72% of people who missed payments said they thought it caused their credit rating to drop.
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For Affirm, dig into the last 10-K, payment defaults have indeed crept in – as defined in the data related to past due loan receivables. Loans not past due account for 95% of total receivables (on an amortized cost basis), indicating that only a small portion of the “ledger” is behind schedule. Looking deeper into the data, bad debts up to 29 days increased by $ 43.8 million, from $ 16.7 million last year. The balance, up to 119 days past due, stood at $ 36.1 million, up from $ 17.9 million a year ago.
Afterpay showed in its own reports that in the year ended June 2021, debt impairment charges were $ 194 million, compared to $ 94 million last year. Provisions for expected credit losses related to trade receivables were $ 99.6 million (out of a total receivables portfolio of $ 1.4 billion), compared to just under $ 34 million.
Sezzle, in his latest 10-Q with the SEC, said gross receivables between one and 90 days past due totaled $ 22.5 million out of $ 120.5 million of total gross receivables.
Data on receivables does not take into account actual write-offs – it suggests overdue payments. Arguably, as loan portfolios grow and the pool of borrowers grows, the absolute tally of bad debts is also expected to increase. But trends should be watched, as are write-off rates, which typically reflect loans that are 90 days past due. Sezzle’s net expenses increased by 5% between year-end and June. But other measures are testament to effective receivables management: Afterpay noted that gross losses within the receivables impairment charge are 90 basis points of sales.
Affirm noted that provisions for credit losses as a percentage of total sales were 8% in the last quarter, up from 21% last year. Affirm said the transitions to new data underwriting models have helped collection processes.
Depending on how you look at the data, negative or positive trends emerge – indicating that for the nascent BNPL model, time will tell.