Buy now, pay later report: Millennials and the shifting dynamics of online credit

Learn about the most favored payment methods used by millennials, including buy now, pay later (BNPL) options that offer transparent, budget-friendly ways to pay. Full report available below.

According to a new research study conducted by PYMNTS.com in collaboration with PayPal, young consumers are payments-savvy and embrace a wide array of payment methods. Nearly 90 percent of millennials (ages 24 to 39) have a credit card, making people in this age group the most likely generation to have credit cards. Bridge millennials (ages 32 to 41) use diverse payment methods for online shopping, including credit (68.2 percent), debit cards (66.3 percent), and digital wallets (42.1 percent).

Variety and flexibility are the watchwords for millennials when it comes to payment options, making BNPL an enticing option for younger consumers who are likely to use it as a means of paying for specific products they want in a responsible and flexible way. Close to 40 percent of millennials who haven’t used BNPL say they would be very interested in doing so through digital wallets.

The growing use of BNPL

While just 6.4 percent of overall consumers in September reported using BNPL, the payment method has been used by nearly double (11.5 percent) that share by bridge millennials — a share that has increased by 28 percent since March.

Current BNPL usage is intriguing, but the untapped potential is compelling. Almost one-third (32.4 percent) of bridge millennials say they would be “very” or “extremely” interested in at least one of three BNPL digital wallet options:

• Three months to pay for purchases over $30 with 0 percent interest (34.1 percent)
• No fees if paid in full within 6 months (32.4 percent)
• Split payment into 4 equal payments with 25 percent down (36.5%)

Given that variety is a top priority for this segment of consumers, it’s no surprise that plan-option flexibility alone is an attractive aspect of BNPL.

Transparency, spending control and convenience are key motivations for using BNPL solutions

Most consumers can choose from several payment methods when making an online purchase and have certain motivators for using one payment method versus another.

• 68.7% of credit card users cite rewards as the main driver for using that payment option for purchases.
• BNPL users are focused on the clarity of fees and interest rates and the ability to monitor spending: 41.8 percent cite the former and 39.1 percent cite the latter as the reasons they use installments for making online purchases.
• At least 30 percent of consumers consider convenience (37.2 percent), the number of merchants that accept it (36.7 percent) and trust that their information is secure (33.1 percent) as important BNPL usage drivers.

The growing interest in using BNPL integrated into digital wallets

BNPL has substantial untapped potential. The share of those who have not used BNPL but who would be “very” or “extremely” interested in doing so is more than three times greater than the 6.4 percent of current users. There may be a key ingredient to driving this level of adoption, however: integrating them into digital wallets, which our study defines as tools or apps that can be used to make online purchases, pay for services, and make online payments to family and friends. On average, 39 percent of millennials who haven’t used BNPL would be very interested in doing so through digital wallets. This suggests that consumers’ appetites for novel financing options grew as more and more consumers went online to do their shopping.

Interest in BNPL digital wallet options

Consumers who haven’t used BNPL solutions would be highly interested in multiple digital wallet-based plans. We found that at least 32.4 percent of bridge millennials would be “very” or “extremely” interested in each of the plans. This suggests that the ability to opt for financing methods tailored to their unique circumstances and preferences helps make BNPL particularly attractive to this demographic.

This broad pattern contains some subtle but significant differences between older and younger millennials. The largest share of bridge millennials, 36.5 percent, would be interested in splitting payments into four monthly installments with 25 percent down. This reinforces the finding that these consumers have financial resources but are looking for a responsible way to finance purchases without incurring fees and debt.

Use of BNPL across purchase categories

Consumers tend to use BNPL for both discretionary purchases and staples, but no category dominates like clothing. Our research shows that 63.5 percent of BNPL adopters use the solution to purchase clothes, more than double the share for any other product type. This is followed by entertainment at 30.3 percent, reading materials at 29.4 percent and household furnishings at 28.7 percent.

How shoppers will pay for holiday purchases

One thing that unites consumers across age groups is that they are more likely to be doing their holiday shopping online versus in stores, which almost certainly reflects continued anxieties around the pandemic. Nearly 97 percent of consumers who plan to do holiday shopping expect to do least some of it online.

Credit cards remain the most likely means of payment for holiday shopping, as is the case other times of the year: 42.7 percent of consumers plan to use credit cards for gift purchases, whether they have cash to cover charges (31.8 percent) or do not (10.9 percent). However, a significant share of consumers (35.7 percent) plan to use debit cards. This preference to use debit to pay for holiday gifts is most pronounced among Gen Z and millennial shoppers: 50.8 percent of Gen Z and 42.6 percent of millennials plan to make purchases using debit.

BNPL financing services can play an important role in motivating consumers to make purchases

Consumers are doing more of their shopping online than ever before. Buy now, pay later financing services can play an important role in motivating consumers to make purchases, particularly the key demographic of millennials. Our research shows that this cohort is not averse to using credit, contrary to some common assumptions. These consumers do have priorities in how they use credit, however. They want to have flexibility in their use of credit, and they want to utilize it in a budget-conscious way. This has profound implications for merchants. The current use of BNPL just scratches the surface of its market potential.