The rise of buy now, pay later (BNPL) has forced the financial industry to consider two key factors. One is its ability to satisfy the needs of consumers, while the other is the advantages it offers merchants. Along the way, BNPL could also help to increase financial inclusion, especially among younger consumers who do not have access to traditional financial products, she noted.
The BNPL payment method can increase financial inclusion by providing consumers with greater access to credit. In the traditional model, consumers must have a good credit score and a history of responsible borrowing to qualify for credit. However, many people, particularly those with limited credit histories or those who have faced financial difficulties, may not meet these requirements.
BNPL allows consumers to make purchases and pay for them in installments over a set period, often with little or no interest. This can make it easier for those with limited access to credit to purchase goods or services they need but cannot afford. Additionally, because BNPL payments are typically processed online or through mobile applications, they can be more accessible to people who may not have access to traditional banking services or those living in remote areas.
With BNPL, financial institutions can reach out to the underbanked, who typically have limited access to traditional financial services, by providing a more flexible and accessible alternative. This can build trust and confidence in financial institutions and encourage more people to use them.
BNPL market value soars in the UK as more people use it
The long-term growth of the BNPL industry in the United Kingdom is expected to continue. Over the next few years, the country's payment adoption rate is expected to expand at a steady pace, recording a compound annual growth rate of 10.9 percent. The gross merchandise value of the country's BNPL sector is expected to reach over $55 billion by 2028.
The rising cost of living in the United Kingdom has prompted more consumers to turn to BNPL to manage their finances. Over 36 percent of consumers in the country have used a BNPL scheme more than once due to the rising cost of living. Gen Z and Millennials are the most frequent users of this payment method.
Among the products consumers are most likely to purchase through BNPL are electronic goods, such as computers, smartphones, and televisions. Other commonly featured products include home improvement and health and wellness equipment.
BNPL's offer for financial inclusion comes with a risk
While BNPL can increase financial inclusion, there are also potential risks and challenges associated with this payment method.
One of these is that payments under this scheme are often processed online or through mobile apps, which makes them vulnerable to fraud or cyberattacks. As with any online transaction, there is a risk that a customer's personal and financial information could be compromised. This may lead to identity theft or financial loss, and customers must be aware of these risks and take appropriate precautions to protect their information.
Another challenge associated with BNPL is the risk of over-indebtedness or default, especially among people under the age of 25.
Because BNPL can be more accessible to people with limited credit histories or financial literacy, there is a risk that they may take on more debt than they can afford. This could lead to default, late fees, and damage to their credit score. Customers must carefully consider their ability to make payments before using BNPL and ensure that they are not taking on more debt than they can handle.
Additionally, BNPL services may not offer the same level of consumer protection as credit cards. For example, if a customer has a dispute with a merchant, they may not be able to dispute the charge or receive a refund as easily as they would with a credit card. This can leave customers at risk of financial loss or having to pay for a product or service they did not receive.
Moreover, BNPL can tempt customers to overspend or make impulse purchases, leading to financial strain down the line. Customers should be careful not to use BNPL to purchase items they do not need.
In summary, while BNPL could increase financial inclusion, customers must be aware of the potential risks and challenges associated with this payment method. They should take steps to protect their personal and financial information and carefully consider their ability to make payments before using BNPL.
