“Buy Now, Pay Later” phantom debt not as scary as it sounds
Shadow banking! Phantom debt! Now that I have your attention...
A recent Bloomberg Big Take discusses the potential risks to US consumption in light of the growth of “buy now, pay later” (BNPL) to juice spending power via credit, arguing this represents a difficult-to-quantify potential vulnerability going forward.
Using some of the same sources drawn upon in the article, we can attempt to provide a little quantitative perspective. First, let’s add the reported global “buy now, pay later” transaction value to the stock of US revolving consumer credit. Note: this approach almost certainly exaggerates the extent to which BNPL inflates credit outstanding.
Then let’s look at the value of all that credit-linked spending as a share of US households’ disposable income. The result? It’s higher, for sure, but not necessarily at levels that are triggering alarm bells. We’re still looking at lower percentage of credit-driven spending versus all of 1997 through 2009.
“We keep hearing about consumers stretching themselves and taking on too much credit, but this really isn't the case,” wrote Neil Dutta, head of US economic research at Renaissance Macro Research, following the May 7 release of quarterly consumer debt metrics. “Credit hasn't hurt, but it is not the main driver of consumption in the last few years. This is about income.”
In addition, this growth in this method of financing has moderated as of late, according to a May 2 report from the Bank of America Institute.
“Adoption of buy now, pay later (BNPL) is slowing year-over-year (YoY), with the share of Bank of America customers with a BNPL payment increasing by only half a percentage point (pp) in March 2024 compared to a one pp increase the previous year,” the analysts concluded.
Using some of the same sources drawn upon in the article, we can attempt to provide a little quantitative perspective. First, let’s add the reported global “buy now, pay later” transaction value to the stock of US revolving consumer credit. Note: this approach almost certainly exaggerates the extent to which BNPL inflates credit outstanding.
Then let’s look at the value of all that credit-linked spending as a share of US households’ disposable income. The result? It’s higher, for sure, but not necessarily at levels that are triggering alarm bells. We’re still looking at lower percentage of credit-driven spending versus all of 1997 through 2009.
“We keep hearing about consumers stretching themselves and taking on too much credit, but this really isn't the case,” wrote Neil Dutta, head of US economic research at Renaissance Macro Research, following the May 7 release of quarterly consumer debt metrics. “Credit hasn't hurt, but it is not the main driver of consumption in the last few years. This is about income.”
In addition, this growth in this method of financing has moderated as of late, according to a May 2 report from the Bank of America Institute.
“Adoption of buy now, pay later (BNPL) is slowing year-over-year (YoY), with the share of Bank of America customers with a BNPL payment increasing by only half a percentage point (pp) in March 2024 compared to a one pp increase the previous year,” the analysts concluded.
