The average Buy Now Pay Later user has a $6,000 credit limit, but earns less than $30,000 a year and has subprime credit.
Financial institutions have traditionally relied on a narrow set of metrics – income, assets, credit score, and spending patterns – to categorize their customers. But a new study has revealed that these criteria don’t accurately reflect the demographics of Buy Now Pay Later (BNPL) customers. This discrepancy is significant because BNPL is a rapidly growing sector that’s changing the way people finance purchases.
BNPL services allow customers to pay for goods and services over time, often with no interest or fees. They’ve become popular among consumers who don’t have the funds to pay upfront or prefer to spread their expenses over time.
Traditional Metrics Fail to Captivate the BNPL User
According to the study, the average BNPL user has a credit limit of $6,000, but their income is less than $30,000 per year. Furthermore, their credit score is often subprime, indicating a higher risk of default. This challenges traditional bank thinking that high-income customers with good credit are more attractive borrowers. The reality is, BNPL users are more likely to be younger, lower-income individuals with limited access to traditional credit.
What This Means
The findings suggest that financial institutions need to rethink their customer segmentation strategies to accommodate the growing BNPL market. By recognizing that BNPL users don’t fit the traditional mold, banks can better tailor their products and services to meet the needs of this emerging demographic. This might involve developing new credit products that cater to the financial realities of BNPL users.
A New Customer Segment
The study highlights the need for financial institutions to adapt to a changing financial landscape. As BNPL continues to grow, banks must be prepared to serve a new segment of customers who defy traditional categorization. By doing so, they can capitalize on the expanding demand for flexible payment options and stay competitive in a market that’s increasingly shifting away from traditional credit products.
