Buy now pay later is fairly new in the fintech segment but the service has rapidly become a trend. Many find the service useful to get their hands on what they want quickly as it divides your purchase into smaller payments and stretches it over a certain period. BNPL does have risks, but it can be very useful when managed correctly. So what makes BNPL stand out as one of the most popular and eminent payment solutions?
So far, BNPL has been the fastest-growing online payment method in the UK. According to data compiled by Worldpay, BNPL schemes are estimated to constitute 10 percent of all UK e-commerce sales by 2024.
Meanwhile in Europe in general, the BNPL market is expected to amount to €300 billion (£260 billion) by 2025. This is equivalent to around 30 percent of the total e-commerce consumption that year. According to the Worldpay Report, 9 percent of e-commerce spending is expected to be processed through BNPL in 2023 and around 11 percent in 2025.
In the US, the number of BNPL transactions has increased from 37.65 percent of total online purchases in July 2020 to 55.8 percent in March this year. BNPL user growth mainly occurred in the 18-14 (62 percent growth) and 55+ (98 percent growth) age groups within the said period. It is claimed that around 36 percent of BNPL users access the service at least once a month.
In Australia, a similar increase in transactions through BNPL services was seen. BNPL has overtaken credit cards in terms of revenue. Credit card usage started to decline in 2016-17 as people began switching to BNPL services. In 2019-20, it generated only around $300 million (£167 million) in revenue compared with $700 million (£390 million) through BNPL.
These numbers surely beg the questions, "what makes BNPL so attractive?" and "how does it help you in managing your cash flow." Other than the rapid development of fintech, what really causes the "shift in consumer behaviour" as claimed by Tim Davis, co-founder and chief executive of Butter, who also said "Millennials and Generation Z are fast becoming the predominant generations, both in terms of size and where economic spend is concerned"?. The answer lies in the conveniences the service provides, which are as follows:
1. Instalment payments
The cost of a purchase through BNPL is stretched over a certain period. Therefore, consumers may regulate their cash flow and manage their budgets more flexibly.
2. No interest charges (mostly)
Most BNPL providers make life easier by charging no interest. However, there are fees for late payments.
3. Easy approval
BNPL transactions can be approved within a few minutes. Customers do not need to submit to credit checks before approval. Only some information is needed for applications to be approved, including the account from which payments will be deducted.
Transactions are automatically deducted from users' bank accounts. There is no need to stand in a line at the bank or log into one's online banking account.
5. Suitable for bad-credit consumers
As many BNPL providers do not check users' credit scores, consumers with bad credit may benefit from the service.
6. Boosts credit rating
BNPL services may boost one's credit rating if always paid on time, provided that the BNPL provider reports to the credit bureaus.
However, despite the attractiveness of the service, it is still a form of debt, most of the time in the form of POS instalment loans, that stretches one's obligation to pay. BNPL is safe for most people, as long as users observe good financial management. That being said, below are the signs that you are not using BNPL correctly:
1. You are charged late-payment fees
Being charged late payment fees means you are paying more than you should have if you do not delay paying your purchases or if you instead save then make your purchases, meaning that you are not calculating your spending well, which could also be a sign that you have poor financial management.
2. You have three or more active purchases through BNPL
According to comparison website Mozo, about 25 percent of BNPL users are indebted with three to five active purchases. Having that number of purchases at a time is pre-committing a significant amount of money, which is not usually a good sign, especially if your initial reason to use the service is to save money.
3. Impulsive buying
Unplanned purchases are never a good sign. It is, again, a sign of poor financial management, which could lead to overspending and excessive debt.
BNPL is arguably one of the most convenient ways of getting your hands on the goods and services you need quickly. But it still requires careful financial planning in addition to a stable income. Otherwise, you will find yourself over-indebted, thus defeating the purpose of using BNPL, which is to improve your cash flow.