The rise of installment plans, such as those offered by “buy now, pay later” services like Afterpay, Affirm, Sezzle, and Klarna, have become more prevalent as consumers are given the option to break up purchases into several equal installments with little to no interest. Popular during the pandemic, these installment loans have continued to influence how consumers spend borrowed money, providing a way to keep spending without feeling like they are going into debt. The flexibility of installment plans appeals to many consumers, especially younger ones, and offers an alternative to high interest rates associated with credit card debt.
Major credit card companies like American Express have introduced their own BNPL programs, such as Amex’s “Plan It”, allowing customers to split payments for purchases into installment plans with no interest. Retailers are also jumping on the bandwagon, with Walmart-backed startups offering their own installment plans for big-ticket items, competing with existing BNPL providers like Affirm. While the growth of BNPL services has slowed recently, due to various factors, the market remains competitive as companies find ways to offer customers installment features without additional transaction fees.
The use of BNPL loans is most common among young people and parents of small kids, reflecting the financial strains faced by these groups. Many consumers, especially those with lower incomes, rely on BNPL services for everyday purchases when cash is tight. However, mainstream brands’ BNPL programs are likely targeting higher-income users, while aiming to retain existing customers by offering installment options. Customer satisfaction tends to be highest with BNPL plans offered by credit card issuers, such as Amex’s Plan It, My Chase Plan, and Citi Flex Pay, which typically require higher creditworthiness for qualification.
While BNPL providers like Afterpay and Sezzle have experimented with loyalty programs, credit card issuers’ rewards programs and higher credit limits remain attractive to consumers. By using credit card installment features, cardholders can avoid interest charges by splitting payments into fixed monthly rates. Older borrowers, on the other hand, appear to be sticking with traditional credit card options or retail store cards. As the U.S. consumer population ages and living costs continue to rise, experts predict more experimentation among lenders to meet evolving consumer demands and business needs.
Overall, the BNPL market is evolving as consumers seek more flexible borrowing options to manage their finances. Major credit card companies and retailers are introducing their own installment plans to compete with standalone BNPL providers. While the growth of BNPL services has slowed, factors such as consumer demographics and income levels continue to influence the use of installment financing options. As the market continues to adapt to changing consumer needs, lenders are expected to explore new ways to provide convenient and cost-effective borrowing solutions for customers across different income brackets.
