Buy Now Pay Later: An Old Idea Remixed

What is Buy Now Pay Later?

Buy Now Pay Later (BNPL), also known as point-of sale loans, allow consumers to divide the cost of their purchases into installment payments that are often due every two weeks. BNPL has been around since the 1840s when makers of sewing machines, farm equipment, furniture, and pianos wanted to make these items affordable. Seventy-five percent of consumers that use BNPL are between the ages of 18-36.  BNPL allows consumers to shop online and some BNPL providers offer a virtual card for in-person shopping. Affirm, Zip, and Afterpay are the most popular BNPL providers.

How does BNPL differ from layaway?

Consumers receive items as soon as a payment is made; whereas, with layaway they are only received after paying the full amount.

Pros and Cons of BNPL

Pros

1.       Flexibility of using a debit card for transactions interest free.

2.       Reminders sent to consumers to make payments.

3.       Usually, no credit check required.

4.       Credit score is positively impacted by timely payments.

Cons

1.       Fees and interest charges occur with missed payments.

2.       Risk of overspending because purchasing may seem easier.

3.       Credit score is negatively impacted by missed payments.

4.       No reward system (e.g., cash back) for using the service as consumers would have with credit cards.

Does BNPL have growth potential?

According to a report by Insider Intelligence, by 2025, the BNPL industry could have $680 billion worth of transactions.  Visa and Mastercard have recently announced that they will provide BNPL services. In addition, APPEX Global, a BNPL provider, announced this month their plans to launch in the United States.

BNPL has significant growth potential because it offers consumers flexibility in making payments for purchases. However, consumers should be cognizant of BNPL’s benefits and risks to ensure their credit is not damaged.