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Proprietary Data Insights Financial Pros Top BNPL Stock Searches This Month
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The Growth of Buy Now Pay Later (BNPL) Buy Now Pay Later (BNPL) services have taken off over the last several years, especially amongst Gen Z. A recent study by Ascent, a Motley Fool service, reported that 56% of consumers used a BNPL service at least once, up from 38% the prior year. Forecasts peg the industry at $680 billion in transaction volume in 2025 from $285 billion in 2018. But as our main story points out, this could all change. Now that credit agencies are beginning to include BNPL loans in reporting and potentially for credit score calculations, we expect the growth of BNPL to decelerate. BNPL isn’t anything new. It’s been around as long as credit and debt have existed. As the chart above shows, there is a huge generational gap between users. And it’s hard to believe that BNPL services can truly outperform credit card companies, let alone compete with their war chests. In all likelihood, we expect more established players, who are already integrated with retailers, to simply offer the same products, pushing out companies like Affirm (AFRM) that are one-trick ponies. That’s why we prefer companies like Visa (V) or American Express (AXP). |
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Consumer Debt |
BNPL Coming to a Credit Report Near You |
Key Takeaways:
Buy Now Pay Later (BNPL) is a gimmick as old as time. Yet, it’s recently become extremely popular with Gen Z. That might change real soon. Shadow Debt Three companies own all the credit reporting in the U.S.: Transunion, Equifax, and Experian. When you buy anything with a credit card, it gets reported to these companies who then add it to your credit report. BNPL loans hadn’t been reported to credit bureaus. So, if you carried a ton of BNPL debt or were late on payments, it didn’t impact your credit score. That’s all about to change. Hitting Your Credit Score? Each credit agency is treating BNPL differently.
Fed Wants Your Data The Federal Reserve is in favor of BNPL reporting as it helps them to calculate and publish data related to total consumer debt. That’s extremely important when they decide how far to raise interest rates. With more cash on hand and less debt, the Fed will need to raise rates more than if the same consumer has higher debt payments. The Bottom Line: We expect BNPL demand to decelerate if and when it starts to impact your credit score. Part of the current appeal is that you can take on short-term debt without it hitting your credit score as well as the ability to defer interest payments. When that changes, you can bet buying behavior will as well. This is bad news for Affirm Holdings (AFRM), less so for PayPal (PYPL) and Square (SQ). We’d be cautious betting on Affirm for future growth. BNPL still seems more like a fad than a sustainable business. |
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