Strong U.S. consumption may be misled by the proliferation of BNPL

High interest rates do not seem to have brought much resistance to American consumption. The reason may be that some \”phantom debt\” supports spending, but it also sows the seeds of disaster.

High interest rates do not seem to have brought much resistance to American consumption. The reason may be that some \”phantom debt\” supports spending but also sows the seeds of disaster.
The increasingly popular \”Buy Now, Pay Later\” (BNPL) model has created a large amount of hidden debt, making it increasingly difficult for the Federal Reserve and Wall Street to grasp the actual economic conditions, affecting economists\’ views on the economic outlook and interest rate trajectory. judgment.
BNPL allows consumers to pay now and pay in installments. US companies offering this service include Affirm (AFRM-US), Klarna and Block (SQ-US)’s Afterpay.
Since the platform has not released data, it is impossible to calculate the size of BNPL\’s debt.
According to Adobe Analytics, U.S. online shopping BNPL loan consumption in the first quarter was estimated to be approximately US$19.2 billion, a 12.3% increase from the same period last year.
BNPL\’s methods such as interest-free installments became popular during the epidemic, especially attracting young digital consumer groups.
Critics, however, say these services are designed to lure the financially disadvantaged.
Edde Haan, an accounting professor at Stanford University, said BNPL \”makes it easier for people to get into debt and the lack of transparency makes this situation more serious.\”
Data collected by pollster Harris Poll shows 43% of BNPL users are behind on payments and 28% are behind on other debts stemming from their use of the platforms.
Middle-class households also rely heavily on these services; polls show that 42% of households with an annual income of more than $100,000 are overdue on BNPL contributions.
More than half of respondents who use BNPL said BNPL allowed them to buy more than they could afford; and nearly a quarter admitted that their BNPL consumption was \”out of control.\”
The survey also found that 23% of users said they could not afford most of their shopping expenses without installment payments; and more than one-third of users turned to BNPL services after their credit cards were overdrawn.
The BNPL service platform has long refused to cooperate with the three major credit bureaus in the United States to disclose data on these ghost loans, claiming that the latter cannot properly handle these small loan data and that disclosing information may damage consumer credit scores.
What is particularly critical is that BNPL\’s opacity may have misled the Federal Reserve and Wall Street analysts in their judgment of the U.S. economic situation.
Inflation remains high and most traditional economic indicators point to a lack of momentum in U.S. consumption; but the reality is exactly the opposite, so much so that economists and traders have repeatedly overturned predictions of slowing economic growth and interest rate cuts by the Federal Reserve.
Strong consumer spending and low unemployment have led many economists to believe that the U.S. consumer is resilient, but the reality is that people may just be spending money on phantom loans that are not included in the statistics.

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