The 'Buy Now, Pay Later' Debate
A gift or a curse?
Payments across instalments - often referred to as ‘Buy Now, Pay Later’ (BNPL) schemes - have grown in popularity over the last couple of years, largely owing to the growth of e-commerce and online payments during the pandemic. In the UK, it was reported in December 2021 that around 15 million adults are actively using BNPL, with the main operators offering the service in the UK being Klarna, Clearpay, Laybuy and PayPal. The ongoing cost of living crisis that has been the result of a year of geopolitical crises, commodity crises, and record breaking inflation rates, has further continued to contribute to the popularity of this interest-free form of credit. Equally providing opportunities and entailing complex challenges, this development has certainly been a controversial one.
One can immediately recognise the benefits of this revolutionised credit system. By spreading out cost, BNPL schemes can help more low-income and/or younger people afford more purchases - this is reflected by how in the US around 13% of those with income below $50,000 used BNPL in the prior year, compared with 7% of those with an income of $100,000, and a similar comparison was seen between those with a high school degree, and those with higher education. Large companies have incorporated this payment scheme, including Apple having announced their plans of providing BNPL services as part of its operating systems, known as “Apple Pay Later”. BNPL’s incorporation within such a big tech corporation reiterates its justified popularity.
However, the need for greater regulation in this increasingly popular development has come to light. A report made last summer shows how 30% of Britons have used BNPL to buy goods, and of these, almost a third (31%) saying the lending had got them into problem debt (The Guardian). The report noted that 13 per cent of those surveyed used BNPL 'because their friends do', a figure that rose to 23% among the under-25s, and almost a third of shoppers who use buy now, pay later credit say repayments on the loans have become “unmanageable”, with the cost of living crisis pushing them into a debt spiral, new research has found. With these concerns coming to light, BNPL payment schemes have been referred to as the UK’s next ‘credit trap scandal’. Despite having advertised itself as a much-needed alternative to traditional credit, ultimately helping more people afford more things, it also brings the danger of taking advantage of those less educated on credit risk, or 'poorly financially informed customers' (Creditspring) BNPL schemes have been criticised as as an emotionally manipulative gateway drug to debt for the young, poor, and inexperienced.
In short, it is yet to be determined whether this controversy surrounding this bold step forward in credit can be stemmed with strict regulation, or whether it will take the greater task of a nation-wide effort for greater financial education, for this revolutionary idea to achieve what it is set out to. It will certainly be interesting to observe the fluctuating popularity and general opinion towards BNPL payments throughout this ongoing cost of living crisis.
By June-Seo Chung