Online shopping is hitting new highs thanks to Buy Now, Pay Later boom

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Americans are continuing their post-pandemic online spending spree in 2024, despite the pain of stubborn inflation and interest rates at a two-decade high. And a major reason for the boom is that consumers are increasingly opting to delay the pain of paying until later.

U.S. consumers spent $331.6 billion shopping online in the first four months of 2024 alone, according to a report released by Adobe Analytics Thursday. That’s 7% more than a year ago,  and importantly, the online spending was driven by new demand, not higher prices. Adobe’s researchers explained that e-commerce prices actually dropped 5.6% from a year ago in April. That means if their figures were inflation-adjusted, the percentage growth figure for Americans’ online spending would have been even higher.

“In an unpredictable economic environment, the latest data from Adobe Analytics shows continued resilience in the digital economy, as consumers embrace new categories online,” Vivek Pandya, lead analyst at Adobe Digital Insights, said in a statement, pointing to spiking grocery sales as a new standout spending category.

But multiple new reports also indicate that many consumers, particularly low- and middle- income consumers, are leaning on credit cards and Buy Now, Pay Later (BNPL) platforms to maintain their lifestyles. A record $25.9 billion of e-commerce spending between January and April was driven by BNPL platforms, as shoppers “embrace more flexible ways to manage their budgets,” according to Adobe. That’s an 11.8% jump in BNPL spending from the same period a year ago.

Adobe also expects BNPL to drive up to $84.8 billion of consumer spending in 2024, roughly 13% more than last year. For reference, that means Americans are on pace to spend more money using BNPL platforms in 2024 than Panama’s entire economy managed to produce in 2023.

Lower-income consumers, in particular, have been relying on BNPL schemes to maintain their spending as inflation continues to bite. Nearly half of all households that used BNPL in March 2024 earned less than $50,000 annually, according to a Bank of America Investment Institute study published May 2. BofA’s researchers found that the share of so-called “heavy” BNPL users—or those who have 20 or more BNPL payments per month—has also jumped 15% since 2019, although it still remains a small percentage of Bank of America’s total credit card users.

Some analysts have warned that the “phantom debt” that comes with BNPL schemes is an underappreciated issue for the economy, arguing it masks the pain that many middle- and lower-income consumers are feeling due to inflation. BNPL debt got the “phantom” tag from Wells Fargo senior economist Tim Quinlan because BNPL platforms often refuse to share customers’ purchasing activity with credit bureaus, which leaves economists and analysts in the dark about just how much total BNPL debt is in the system. However, Quinlan told CNBC Thursday that nearly a third of the current growth in U.S. credit card debt could be a result of BNPL platforms, according to his back of the envelope calculation.

Many Americans have been relying on credit cards to boost their purchasing power in recent years. Credit-card debt hit a record high of $1.13 trillion in the fourth quarter of 2023, according to the Federal Reserve Bank of New York. A the same time, credit card delinquency rates doubled from 1.5% in the third quarter of 2021 to 3.1% in the fourth quarter of last year. That’s still well below the over 6.7% delinquency rate seen after the Great Recession in 2009, but it’s an unhealthy trend. 

Still, the good news is that although BNPL platforms are boosting credit card debt levels and could be a risk for individual consumers, BNPL payments still make up a small share of overall credit card balances, according to BofA, which “likely limits the overall risk to consumers and the wider economy.”

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