US BNPL’s consumer debt set to reach  billion by 2025 – study

US BNPL’s consumer debt set to reach $15 billion by 2025 – study

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By Manya Saini

(Reuters) – U.S. customer debt due to buy now and pay later is expected to reach $15 billion by 2025, a report from management consulting firm CG42 said Thursday.

The industry experienced a major boost during the COVID-19 pandemic as local consumers opted to shop online, a trend urging digital payment giants such as Block Inc and PayPal Holdings Inc (NASDAQ πŸ™‚ to expand further into this sector.

However, the current uncertainty in the macroeconomic outlook due to geopolitical turmoil, rapid rise in interest rates and sharp inflation has hit the previously soaring sector.

Valuations of some of the biggest players in the industry have fallen this year after 2021. Shares of Affirm Holdings Inc have fallen more than 70%, while Swedish rival Klarna cut its valuation by more than 80% to $6.7 billion from $46 billion last year.

The study showed that BNPL’s customer base in the United States is expected to grow by 27% between 2022 and 2025.

About 84% of the more than 2,000 people surveyed said the BNPL model allows them to purchase items they would not otherwise be able to purchase, while 39% said they “regularly” pay late fees due to defaults.

β€œUsers are also placing their BNPL payments on their credit cards, which leads to a very frightening double detrimental effect where laid-off individuals will experience double fees and have no way to repay their debts,” said Hugh Talents, chief administrator. Partner and leading financial services practice at CG42.

“BNPL operates outside the traditional credit system at the moment. People don’t consider it debt and they can’t keep track of how much they own in total.”

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The BNPL industry remains popular with younger consumers, many of whom are struggling to save and achieve their financial goals, and is largely unregulated in the US, one of its largest markets.

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