How “Buy Now, Pay Later” (BNPL) Spending Has Influenced Companies and Consumers

The rising trend of “Buy Now, Pay Later” (AKA BNPL) features lending-related payments as more consumers, particularly younger generations, seek to purchase more and make their payments over longer periods of time. Nowadays, it seems as though many are avoiding credit cards in hopes of preventing further debt, which is why the BNPL is seemingly “the perfect alternative.” Although this BNPL spending system allows consumers to make purchases instantaneously, it has also raised many concerns about the increasing rates of consumer debt and spending in our uncertain economy. Here’s everything you need to know about how BNPL has affected companies and consumers alike.

Consumer Potential Risks and Drawbacks

As consumers, BNPL appeals to us because we believe that we are paying less for a product since they are publicized as more modest sums. Smaller payments can fool individuals into spending more than they should. For instance, in the event that you purchase a product for $360 and spread it out into 12 installments of $30, that sounds more sensible than paying a total of $360 altogether.

BNPL payments make tracking your personal spending significantly more challenging as payments are spread out between long periods of time. Additionally, if you’re sticking to a monthly budget to stay on track with your goals, you will have to make changes in order to incorporate your BNPL purchases. Buy Now, Pay Later systems also make it easier for consumers to fall into impulse buying and overspending past your budget. If you struggle with overspending on your credit cards, BNPL payment plans can easily tempt you to purchase more, causing you to accumulate even more debt outside of your spending limits.

Although BNPL payments are usually interest-free, it doesn’t necessarily mean that they’re a good deal. Behind the scenes, BNPL programs can charge additional fees to merchants who use their systems, which can ultimately increase the prices of the goods and services being offered. Despite the fact that you may not be paying interest or additional fees, you could be financing your installments towards products that you could purchase with money in your bank account. The ideal situation would be paying for it in cash.

Lastly, it is important to remember that BNPL is essentially a loan. If you happen to miss a payment or don’t pay at all, you’ll have to deal with the consequences of a BNPL loan just as you would with any regular loan such as risking late fees, additional interest, and damage to your credit score.

What Companies Need to Look Out For

With a prolonged period of payment deadlines, consumers might be more willing to spend their money at your business. However, with more spending power, comes more credit responsibility for companies to follow through with. BNPL spending ultimately creates a large amount of credit, which results in difficulties with large consumerism countries such as the US. With an uncertain economy caused by the pandemic, employment decline and a wobbly economy can potentially make BNPL even more attractive to an average consumer who wants to purchase things with money they don’t have.

Risk management and fraud detection will be critical for companies who use BNPL to survive in the market. These particular aspects are especially important in the BNPL system where customers typically make a one-off transaction and drop-off from their remaining payments. From a company’s fraud and risk perspective, this is a very challenging risk to confront. Therefore, companies should be on high alert when it comes to the potential risks of BNPL payment methods.

At the end of the day, consumers should be sure to read the fine print on a company’s BNPL conditions and evaluate if this particular payment method is right for them. On the surface, it seems nice to be able to buy anything you want without having to pay upfront in it’s full amount. However, in terms of your overall financial health, sometimes the wait will be worth it when it comes to saving your money before buying something you can’t afford in the first place. Consult one of our Spinnaker financial advisors to see if the Buy Now, Pay Later is the right fit for your financial needs.

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The information contained herein is based on internal research derived from various sources and does not purport to be statements of all material facts relating to the securities mentioned. The information contained herein, while not guaranteed as to the accuracy or completeness, has been obtained from sources we believe to be reliable. Opinions expressed herein are subject to change without notice.

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