Americans continue to spend post-pandemic online into 2024 despite the pain of stubborn inflation and interest rates at 20-year highs. And the main reason for the boom is that consumers are increasingly choosing to postpone 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 Thursday by Adobe Analytics. This is a 7% increase from a year ago, and importantly, online spending was driven by new demand rather than rising prices. Adobe researchers explained that e-commerce prices actually fell 5.6% year-on-year in April. That means Americans' online spending would have grown at an even higher rate if their numbers had been adjusted for inflation.
“The latest data from Adobe Analytics shows the resilience of the digital economy as consumers embrace new categories online in an unpredictable economic environment,” Vivek Pandya, principal analyst at Adobe Digital Insights, said in a statement. “It shows that there is continuity,” he said, noting that grocery sales are surging. New outstanding spending categories.
However, new reports show that many consumers, especially low- and moderate-income consumers, rely on credit cards and buy now, pay later (BNPL) platforms to support their lifestyles. It also shows that Adobe said its BNPL platform drove a record $25.9 billion in e-commerce spending from January to April as shoppers “adopted more flexible ways to manage their budgets.” This represents an 11.8% increase in BNPL spending compared to the same period last year.
Adobe also expects BNPL to boost consumer spending by up to $84.8 billion in 2024, about 13% more than last year. For reference, this means that Americans are on pace to spend more money using the BNPL platform in 2024 than the entire Panamanian economy managed to produce in 2023. Masu.
As inflation continues, low-income consumers in particular rely on BNPL schemes to keep their spending afloat. According to a study by the Bank of America Investment Institute released on May 2, nearly half of all households using BNPL had annual incomes of less than $50,000 as of March 2024. BofA researchers found a high percentage of so-called “heavy” BNPL users, or BNPL users. His BNPL payments of more than 20 times per month have also increased by 15% since 2019, but Bank of America's credit cards remain a small percentage of his total users.
Some analysts have warned that the “phantom debt” associated with the BNPL system is an underappreciated problem for the economy, masking the pain that many low- and middle-income consumers are feeling from inflation. It is claimed that there is. BNPL's debt was tagged as “phantom” by Wells Fargo senior economist Tim Quinlan. BNPL platforms often refuse to share customer purchasing activity with credit bureaus, leaving economists and analysts in the dark about how much BNPL debt is in the system. But Quinlan told CNBC on Thursday that behind-the-scenes calculations show that nearly a third of the current increase in U.S. credit card debt could be the result of the BNPL platform.
In recent years, many Americans have turned to credit cards to increase their purchasing power. Credit card debt hit a record high of $1.13 trillion in the fourth quarter of 2023, according to the New York Fed. At 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. While this is still well below the 6.7%+ delinquency rate seen after the Great Recession in 2009, it is an unhealthy trend.
Still, the good news is that while BNPL platforms are driving up credit card debt levels and may pose a risk for individual consumers, BNPL payments remain a small percentage of total credit card balances, according to BofA. “The overall risk is likely to be limited.” to consumers and the broader economy. ”
