Author: Team PCN

Trend explained: Buy now, pay later (BNPL) 

Klarna, Affirm and Afterpay and are some of the pioneers of the buy now pay later (BNPL) trend in Europe. Companies like Billie and Mondu are also known as other popular players, especially in B2B. The rising trend of buy now, pay later has gained popularity as an alternative to traditional credit cards and loans. 

What is “buy now, pay later”? 

Buy now, pay later refers to a form of temporary financing enabling consumers to purchase items immediately and make the payment gradually, often without any interest charges. Getting approval for a BNPL loan is comparably easier than a credit card or personal loan since they’re considered microloans. It won’t cause any negative impact on your credit score as long as you pay the installments fully and on time

Why did this trend become so popular? 

According to a PYMNTS survey, approximately 60% of consumers express a preference for the BNPL option over credit cards. The payment method is especially popular among Gen-Z and millennials. 

This preference of the young consumers is driven by many factors such as the simplicity of setting up payments, a convenient approval process, and the lack of interest charges. Buy now, pay later services and applications provide consumers with increased purchasing options. Also, the payment method is considered a more cost-effective alternative to credit cards. 

Besides luxury goods, BNPL is also heavily used by people for daily necessary purchases like groceries or household items. According to Klarna’s report, more than half of the top 100 items its app users are now buying are within these categories. However, economists perceive this change of user behavior on these apps as a desperate signal of cost of living crisis rather than a willingly adopting this new way of payment.

What are the disadvantages of BNPL? 

The convenience of getting approval for these microloans comes with some downsides. While the service is making it easier to purchase goods for shoppers, it can also make it more difficult for them to manage their personal finance or handle returns. Although BNPL might feel like a way to stretch your money, it’s actually causing many people to be at risk of being on the hook for high-interest charges.

BNPL services let consumers take out several loans within a short time frame which sometimes causes an unsustainable level of debt. In that sense, the biggest possible threat of BNPL is that it is considered as an unregulated or limitedly regulated form of credit. 

What does the future look like for this new trend? 

The Australian government recently announced that they will introduce new laws under the credit act to regulate the buy now pay later industry. BNPL services will be treated as a credit product which means the providers will be required to have a credit license to comply with hardship requirements and minimum standards of conduct. The main reason behind these new strict regulations is the financial dangers that these products pose to consumers. 

Previously to the Australian government, The UK government has proposed regulations for BNPL credit agreements. The regulations would bring BNPL agreements under the oversight of the Financial Conduct Authority. Lending firms participating in BNPL agreements would be required to obtain authorization and comply with several legal and regulatory obligations such as assessing the creditworthiness of borrowers. The main aim of these practices is to ensure consumer protection and responsible lending practices in the BNPL sector.

Although these regulations are expected to eliminate some BNPL users with a lack of financial means to afford some goods, it doesn’t mean that the payment method will lose its popularity. As consumers increasingly seek convenient and flexible payment options, buy now pay later services are expected to expand and evolve to meet their needs within a better structure.  

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