Cyber Monday Sales Set a New Record but Here’s Why It Might Actually Be a Bad Thing

SAVING & SPENDING - BUDGETING & EXPENSES
Buy Now, Pay-Later usage is increasing in the U.S., but at risk to consumer's financial health
Updated June 6, 2024
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As the holiday season unfolds, the shopping extravaganza, beginning with Black Friday and extending to Cyber Monday, took an unexpected turn this year. Analysts, anticipating a softer season amid high-interest rates and soaring consumer debt, were surprised to witness Cyber Monday sales surge 7.7% over the previous year, defying projections. What fueled this unexpected growth?

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 The answer lies in the rising popularity of "buy now, pay later" (BNPL) services. This financial tool allows consumers to navigate the shopping frenzy without succumbing to the burden of immediate payments.

The Cyber Monday surge

While the holiday shopping season seemingly creeps earlier each year, Black Friday traditionally marks the official commencement. However, in recent times, this American tradition has expanded to embrace Cyber Monday. This digital counterpart invites consumers to partake in the shopping extravaganza from the comfort of their internet-enabled devices. 

The allure of Cyber Monday has grown in tandem with the increasing popularity of online shopping. In 2020, e-commerce retail sales peaked at 16.5% of total sales, and though it slightly receded to approximately 15.6% in the third quarter of this year, Cyber Monday's pull persists.

According to Adobe, consumers unleashed a spending spree of $12.4 billion this Cyber Monday, reflecting a 9.6% increase from the previous year. The peak of this online shopping frenzy, between 10 a.m. and 11 a.m. Eastern time, saw consumers collectively spending a staggering $15.7 million every minute. 

The appeal of Cyber Monday lies not only in the convenience of online shopping but also in the deals it offers. Electronics witnessed a peak discount of 31%, furniture sales peaked at around 20%, and apparel prices experienced a notable 23% decrease.

Unexpected growth amid economic uncertainty

Despite economic indicators suggesting a challenging quarter with high-interest rates and persistent inflation, Cyber Week witnessed a surprising surge from Thanksgiving to Cyber Monday. Shoppers spent $38 billion, marking a 7.8% increase year-over-year. 

Vivek Pandya, lead analyst at Adobe Digital Insights, remarked on the uncertainty surrounding the 2023 holiday season, noting a shift in consumer spending toward services amid rising costs in various facets of their lives. However, the record-breaking online spending during Cyber Week highlighted the significant impact of discounts on consumer demand, particularly for quality products that fueled impulse shopping.

The rise of 'Buy Now, Pay Later'

A notable contributor to this unexpected growth is the increasing reliance on economic tools like "buy now, pay later." On Cyber Monday alone, BNPL usage reached an all-time high, contributing a substantial $940 million in online spending — a remarkable 42.5% year-over-year increase. 

Since the start of November, BNPL has driven $8.3 billion in sales, reflecting a 17% increase from the previous year. This financial tool has proven instrumental in enabling consumers to afford holiday trinkets without immediate financial strain.

Pros and cons of the BNPL phenomenon

The surge in BNPL usage comes with both advantages and serious drawbacks. On the positive side, BNPL provides consumers with a flexible payment option, allowing them to spread the cost of purchases over time without incurring hefty credit card interest rates. This approach aligns with shifting consumer preferences and their desire for financial flexibility.

However, the downside is the potential encouragement of impulsive spending and debt accumulation. While BNPL alleviates immediate financial strain, it may tempt individuals to buy beyond their means, contributing to a cycle of debt if not managed responsibly. Striking a balance between enjoying the convenience of BNPL and making informed, budget-conscious decisions becomes crucial in maximizing its benefits. 

 The BNPL feature creates serious risks for consumers, and the data points to an overall consumer profile that cannot afford the charges that have driven Cyber Monday's outperformance. While the tool can be helpful to space out holiday spending payments ahead of bonus season, it should not be used as a clutch for purchases that otherwise cannot be afforded at all. BNPL poses serious risks to consumer credit and increases overall debt and should be used responsibly.

Just last year, the New York Times reported that Americans hit hard by inflation use the service to pay for groceries and other necessities. Borrowers may also have trouble securing multiple loans. Consumer Reports also reported in 2022 that more than a quarter of consumers using a pay-later loan said they had at least one problem, like being overcharged or having trouble getting refunds. 

The Consumer Financial Protection Bureau also reported during the same period that late or missed payments may add on fees of about $7 per payment on an average loan of just $135 — and this was all before usage of the service jumped to 2023 levels.

Bottom line

The unexpected success of Cyber Monday amid economic uncertainties can be attributed, in part, to the rising prominence of BNPL services. As consumers continue to navigate high-interest rates and inflation, BNPL offers a lifeline, enabling them to participate in the holiday shopping extravaganza while managing their budgets. 

However, consumers should approach BNPL with a thoughtful and responsible mindset, ensuring its convenience does not lead to financial pitfalls. As the holiday season progresses, the BNPL phenomenon prompts a broader conversation about the evolving landscape of consumer finance and its impact on spending habits. 


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Author Details

Georgina Tzanetos Georgina Tzanetos is a former financial advisor who has been active in financial media for the past six years. She holds a master's in political economy from NYU, where she studied distressed labor markets.