Buy Now Pay Later (BNPL) Service
Estimated $94.9 Billion Last Year
Primarily Used by Low-Income Groups, Increasing Delinquency
National Statistics Not Recorded, Causing Concerns
As Buy Now Pay Later (BNPL) services rapidly expand in the United States, they are being identified as a risk factor that increases household debt. BNPL is sometimes referred to as phantom debt because the exact scale of the debt is not accurately captured in statistics. Although the scale of related services in Korea is still small, there are calls for proactive preparation.
According to the Bank of Korea's New York office on the 2nd, BNPL payments in the U.S. have grown at an average annual rate of 137.1% since 2019, reaching an estimated total of $94.9 billion (about 126 trillion KRW) last year. The payment volume has increased mainly through online channels. During last year's Black Friday shopping period, the share of BNPL payments in total online transactions surged to 7.2%, up significantly from 4.9% in 2020.
BNPL is a service where IT platform companies like PayPal and Klarna mediate between consumers and merchants, allowing consumers to purchase goods and repay the amount in installments without interest or at a low interest rate after a certain period (usually within 4 to 6 weeks).
The platform companies pay the full amount to the merchants upfront and later collect payments from consumers, bearing the consumer credit risk entirely. Merchants benefit by selling goods without credit risk in exchange for paying high fees to the platform companies.
Primarily Used by Financially Vulnerable Groups, Leading to Increased Delinquency and Other Issues
BNPL does not require credit rating criteria, so consumers without financial history can also use it, mainly attracting younger generations and low-income groups. According to a local U.S. survey, 24.3% of BNPL users were low-income individuals earning less than $30,000 annually. The proportion of low-credit users reached 42.5%.
Because financially vulnerable groups primarily use the service, various problems arise. According to the U.S. Consumer Financial Protection Bureau (CFPB), the loan delinquency rate among BNPL users is 18%, more than twice that of non-users (7%). Young consumers without financial history or those with low credit actively use BNPL as a means of consumption, increasing the risk of delinquency and expanding the debt scale of these borrowers due to indiscriminate spending.
The lack of accurate national statistics on BNPL is also cited as a factor destabilizing the financial system. The Wall Street Journal evaluated that credit transaction information of BNPL users (usage scale, delinquency status, etc.) is not shared among credit rating agencies or even between BNPL companies, making it difficult to grasp the overall BNPL transaction scale and users' debt repayment capacity.
Wells Fargo pointed out that considering BNPL is phantom debt not reflected in official household debt statistics, there is a possibility that the scale of U.S. household debt, delinquency rates, and related risk indicators are underestimated.
Market Growing in Korea as Naver, Kakao, and Others Introduce BNPL
In Korea, several big tech companies such as Naver Financial, Kakao Pay, and Toss are providing post-payment services similar to BNPL in the U.S. Naver Financial launched 'Naver Pay Post-Payment' in April 2021. Kakao and Toss also entered the market from 2022, and the scale of related services in Korea is estimated to reach several hundred billion KRW monthly.
As services increase domestically, there have been controversies such as rising delinquency rates. According to the Financial Supervisory Service, as of the end of June last year, the average BNPL delinquency rate of the three companies?Naver Financial, Kakao Pay, and Toss?reached 5.8%, indicating the need for management.
A Bank of Korea New York office official emphasized, "In Korea, credit card issuance is easier and interest-free installment services are more developed compared to the U.S., so the BNPL scale is relatively small. However, if post-payment usage becomes more active along with the development of simple payment services, it could act as a factor worsening household financial soundness, so proactive preparation is necessary."
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