Buy Now Pay Later (BNPL) is a Boom or a Bomb?

Buy Now Pay Later (BNPL) is a Boom or a Bomb?

It’s not just about convenience yeah

Many years ago, when I shared that Buy Now Pay Later (BNPL) is not about convenience but it’s more of a financial issue, someone said that BNPL has been around for a long time. This someone then gave two examples, buying a car and buying a property. I replied then that both are assets depending on the utilisation.

Anyway, short answer is this. If one is driving for living for example, that car becomes an asset because it generates return. If one buys a home and stays inside it, this is also an asset because one saved rental which would otherwise gone to the owner and in the end the tenant has nothing. Thus, as long as the thing which we put under BNPL is to generate returns, then it’s positive and should be encouraged.

As long as it willl generate returns

Think a little deeper. How many of the BNPL stuffs people buy are actually to generate returns? That pair of branded new sports shoe? Yes… there are people putting this under BNPL already. That new smartphone because the old one is no longer in-trend? Or even that new 70 inch LED TV because one deserves the very best and a 40 inch LED TV which is now very affordable is NOT good image when friends come visiting?

Here’s another view.

Article in cnbc.com 4 in 5 U.S. consumers use BNPL on everything from clothing to cleaning supplies, according to Experian, and most shoppers said buy now, pay later could replace their traditional payment method which is likely to be via credit cards.

Marshall Lux, Fellow at the Harvard kennedy School said, “Three years ago, people talked about Peloton bikes, now people are buying sneakers, jeans, socks.” When people start buying household goods on credit, that signals a problem. When people start buying household goods on credit, that signals a problem.”

Acocrding to a survery by LendingTree, nearly 70% of buy now, pay later users admit to spending more than they would if they had to pay for everything upfront. Further more, 42% of consumers who’ve taken out a buy now, pay later loan have made a late payment on one of those loans. Read more here: Article in cnbc.com

When we buy more than we could (financial capability)

Affordable is a word which comes from afford and able. It means ACTUALLY I could afford it based on my capability. In this case, this capability is financial capability; I do have the money to pay for the item which I am about to buy and put it under BNPL. Most of the time, in the beginning, this was the case. The issue comes when the number of items under BNPL becomes way too many and just the repayments alone may force the person to start defaulting on one or some of the BNPL payments. That’s why even if the marketing pitch is about convenience, the potential risk from BNPL is that it may become a ticking financial bomb sooner or later for some people.

BNPL is fueling economic activities too

BNPL is however fueling demand for goods and services and this is driving the economy too. Stopping it may also incur the wrath of consumers because this is considered a convenience. For many businesses, BNPL is also driving up their sales revenues too and this is important for their survival / profitability. I do think BNPL will continue growing aggressively; booming. At the same time, I could not stop thinking that this is also a financial bomb for some of the BNPL users.

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