The future of buy now, pay later: Part one.

September 14, 2022

Several times in this blog, we have talked about the phenomenon that is buy now, pay pater (BNPL), a term most of us are familiar with at this point.

While BNPL continues gaining popularity, the calls for regulation become louder and louder, prompting some industry leaders to “adopt a war mentality, criticizing the credit card sector.”

Even though these calls for regulation are well intentioned, as it is needed to prevent further exploitation of consumers.

the BNPL segment is growing at more than 22 percent annually, and was worth $4.1 billion last year.

Some markets have seen huge growth thanks to BNPL, with Canadians reportedly asking for 36% more BNPL credit on 2021, while US consumers asked took on 66.5% more credit the last year alone.

Overall, the debt totals a whopping $14 trillion. The “largest amount in recorder history.”

Research from Equifax last year claimed consumers would spend up to half as much again in certain verticals if BNPL were more widely available, with a study from Alliance Data confirming that 38 percent of the 18-35 bracket would spend more on BNPL if it were more widely available at checkout.

Appart from the simpler set-up and the lack of credit agreements or credit checks, as well as more willing customers, which is a big appeal for merchants who use this service, the argument in favor of BNPL is that it helps customer buy what they need, specially during a time when inflation is becoming a growing fear in consumer’s minds. However, the other side of the coin is not so bright. A study published by Citizens Advice UK revealed that one in ten BNPL users has been referred to collection agencies, many of these customer are facing negative consequences due to it.

In addition,  there are some companies allegedly benefitting from the incurred debt.

For all that the BNPL segment attacks the credit card sector for profiteering, it’s no stranger to making money from late payments itself, with BNPL specialist Laybuy netting more than half its 2021 revenues from late payment fees

According to Chief Identity Officer at Outseer, Armen Najarian, the BNPL bubble could be “set to burst” due to the lack of regulation and customers who are buying products they have “no intention of paying for.”

According to Chief Identity Officer at Outseer, Armen Najarian, the BNPL bubble could be “set to burst” due to the lack of regulation and customers who are buying products they have “no intention of paying for.”

however, in BNPL’s defense, (according to industry giants) is that there is no interest accrued as long as the item is fully paid for within the agreed window. This window is usually between 15 to 45 days. This lends itself to the argument that BNPL is safer than other credit options.

There are many factors to consider when we talk about BNPL vs. other traditional credit options. However, at the end of the day, both can be harmful to customers who can’t keep up with the payments. 

Next week we will talk regulation, and whether it can “burst the BNPL bubble.”

Want to learn more? Check out Payments Cards and Mobile’s full write-up here.

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