By: Adam Hodz, VP, Product Management at PSCU

Holiday gift purchasing is in full swing. An October poll from Gallup found that consumers plan to spend about the same amount of money on gifts as they did last year, with 58% saying they will spend about the same, 23% saying they will spend less, and 18% saying they will spend more. This is a reassuring indicator that consumers won’t drastically curb their holiday spending this year, despite overall current consumer sentiment declining.

Consumers might look to Buy Now, Pay Later (BNPL) point of sale programs to stretch their wallets when making holiday purchases this year. The popularity of BNPL programs have skyrocketed in recent years. PSCU’s 2023 Eye on Payments study reveals an increase in both the availability and usage of BNPL programs: of credit union members who say their financial institution offers BNPL, 74% report having used it (up from 69% in 2022). At the same time, 35% have used a program offered through another entity like Affirm or Klarna. Credit union members said they would be more likely to use a BNPL program from a financial institution this year (33%) than in the past two years (31% in 2022 and 25% in 2021). The popularity of BNPL programs doesn’t show signs of slowing down.

Adobe’s annual holiday shopping forecast predicts BNPL programs will drive $17 billion in spending. Some consumers even plan to use BNPL programs to pay for holiday travel. BNPL programs can be a great payment tool for members to use this holiday season — if used responsibly. It’s important for credit unions to provide education about the risks of BNPL to help members protect their financial health this holiday shopping season. 

BNPL Offerings

There are different types of BNPL solutions available, including pre-purchase, at-purchase and post-purchase plans. Pre-purchase plans require consumers to opt into installments before making a purchase. At-purchase plans prompt consumers to pay with installments during checkout but require merchant integration. Post-purchase plans allow consumers to convert a recent credit card purchase into installments. Post-purchase plans, like those offered through PSCU’s BNPL solution, provide card issuers greater flexibility based on cardholder history, existing credit lines and regular interactions.

Risks of BNPL Programs

BNPL became popular because of convenience and flexibility. Loan terms can vary from short- to long-term, and most come with no interest attached. These easy-to-use BNPL offerings can help borrowers manage their finances, as many try to align installment payments with pay periods. 

However, as USA Today reports, BNPL can encourage excessive debt, affecting consumers’ ability to meet both BNPL and non-BNPL obligations. Borrowers can be hit with interest or late fees for missed payments. And since multiple BNPL loans can be taken out at once, that debt can add up quickly. Many BNPL providers also fail to grant consumers the same rights and protections as credit card companies. 

While BNPL programs’ popularity spans generations, most borrowers skew toward the Gen Z and Millennial cohorts. The 2023 PSCU Eye on Payments study found that more than half of Gen Z (59%) report using BNPL programs and Younger Millennials show the greatest likelihood of using their financial institution’s BNPL program (61%), an increase of 74% from 2021 (35%). Gen Z and Millennials already tend to be more overloaded with debt than other generations.

Promote Responsible BNPL Usage

The credit union movement encourages the financial well-being of all. Whether your members are utilizing a BNPL solution offered through your credit union or one of the other popular BNPL offerings out there, your credit union should provide educational material about BNPL’s risks and benefits to help prevent your members from overextending themselves. Provide guidance to members about using BNPL as a budgeting tool, not as an opportunity to live beyond their means. Consider offering financial counseling or credit card balance transfers to help members who are in debt due to BNPL loans figure out how to best pay off their obligations. 

The current popularity of BNPL offerings will carry through the 2023 holiday shopping season. Your credit union should be on the front line of this trend, encouraging members to practice responsible BNPL loans (whether with your credit union or not) for their holiday shopping and travel plans to help members minimize any post-holiday shopping regret in the new year. 

Adam Hodz is the Vice President of Product Management at PSCU. In this role, Adam manages PSCU’s strategic vision for products and identifies new opportunities in the market. Prior to this role, Adam managed the Payments and Fraud Strategy team at PSCU, where his team focused on launching new products to the market, delivering multiple key strategic initiatives such as Buy Now, Pay Later (BNPL), Enhanced Fraud Services and a new Fraud Alerting system. With more than 10 years of experience in Product and nine years within Fraud, he has managed numerous initiatives throughout various stages of the product development lifecycle. He holds a master’s degree from the University of South Florida.