The Buy Now Pay Later (BNPL) payment system is the fastest growing online payment method in the UK, with almost 4 in 10 Brits having used the service, generating a boom in fintechs offering the option. Although it has more than proved its usefulness, especially throughout the pandemic, concerns that alongside the greater flexibility comes the potential to lessen consumer’s perceived risk of debt and lead to overspending are mounting in regulatory action.
So, with nearly 9.5 million Brits admitting to avoiding buying from retailers that don’t offer BNPL options at the checkout a balance must be struck. Let’s delve into the advantages and pitfalls that have been shown through its use.
The current state of the BNPL model
The model is simple, it allows for consumers to shop for an item online and in store with some retailers, by splitting the cost over multiple payments which are to be made on agreed-upon dates. The payments are then made by the consumer, generally interest-free, on the agreed dates, allowing consumers to make and receive their purchases while not having paid for the item or service in full.
In the UK, research shows that over half of BNPL users are using the service more during the pandemic with its popularity being the highest among millennials, although growth is fastest among users in their 40’s and 50’s, showing BNPL is no longer just a millennial and Gen Z trend. Consumers are increasingly looking for the payment option to be available at the checkout when shopping online. However, BNPL is not yet regulated by the Financial Conduct Authority (FCA), a fact which has deterred some from using it but may change as it has been subject to much scrutiny in the media. Consumers and retailers alike must weigh the current pros and cons when deciding whether to implement and use the system.
The advantages that have been displayed
Through the use of BNPL, consumers have profited from a wide range of advantages. For starters, its ease of use has meant that purchases using the payment method could be made with no friction during checkout, providing a simple shopping experience. The main USP of BNPL being the ability to delay payments and spread the cost, which means that it is easier on the pockets of consumers, especially those who have seen income slow down during the pandemic. Also, the payment plans offered are generally interest-free, meaning customers don’t end up getting charged extra when using this credit option for the service or goods they are buying.
With BNPL becoming increasingly popular as a payment method, retailers should look to implement the service to their checkout as data from ECOMMPAY showed that almost three quarters (71%) would be likely to abandon their checkout process if their preferred method of payment was not available. As with all financial plans however, if used incorrectly, the BNPL model can become slightly more taxing and disadvantageous.
How the model may prove disadvantageous to those not equipped to use it
When it comes to finances of any kind, it’s important to emphasise how, if the agreed system is not adhered to the letter, the consequences can leave a sour taste in the mouth. However, this all comes down to how the individual handles their payments.
More often than not, the BNPL provider will be the one deciding the due dates for the payment installations. Failure to meet the payment dates with the required amount can lead to high late fees. Not to mention, that it is also likely to negatively affect an individual’s credit score if the late payments are reported, which can cause complications with further purchases down the line. Ultimately, if a consumer misuses the system to make purchases with a pay later option, in the knowledge they still won’t have the credit available in the future to complete the transaction, debt can begin to mount – often compounding existing financial stress.
It’s clear that, while the pros of this technology do outweigh the cons, how useful the BNPL can be to a consumer depends on their financial knowledge and discipline. Ultimately, the “disadvantages” only occur in the event that the customer is not handling their finances well in the first place. To the regular consumer who can meet payment dates on time, this method of payment can prove to be incredibly useful, and it is likely that even in the face of new regulations we will see further fintechs continue to innovate using the BNPL model, while also seeing increased adoption overall.
