Buy Now Pay Later — A Boon or a Bane?

With the widespread adaptation of the digital medium for the purpose of shopping, there is an increase in spending and also a sense of immediate gratification that has made “Buy Now Pay Later” or BNPL a tremendous success. Over the decade, with the arrival of credit cards and EMIs to BNPL, various sellers have been making the buying process very seamless by partnering with various financial institutions.

Additional reads : EMI or loan moratoriums — the know all

What is “Buy Now Pay Later”?

Buy Now Pay Later or BNPL is a secure, easy and hassle-free alternative for payments that provides a free credit period for all your needs with no hidden fees. It allows you to purchase products and pay them over a period of 30 days that is extendable over 60–90 days with no or minimal fees. No interest will be charged if repaid within 30 days, however failure to do so will result in a low credit score. BNPL companies earn revenue by charging commissions from merchants on sales. Cash in-flow comes with ease and this method turns out to be very profitable. This payment alternative has seen a great uptake in the e-commerce sector.

How does it work?

BNPL has four steps in the customer shopping process.

1. The customer adds the product of their choice to their virtual cart
2. They then select the BNPL company of their choice at check-out
3. If the order is placed offline, the seller sends the order to the BNPL company of the customer’s choice for authorisation after which the products are arranged and shipped
4. The customer will receive a 30-day net term and check-out will be completed
5. The supplier will ship the products to the customer and the seller would get an immediate payment within 48–72 hours
6. The BNPL company would then contact and send an invoice to the customer on or a little before the 30th day of payment.

What’s the target audience for this?

It makes sense for the following audiences to utilise the BNPL method.

1. B2B e-commerce platforms that can provide this service to their customers to increase sales
2. Wholesalers that are looking to purchase high priced merchandise or products in bulk
3. Entrepreneurs who can drive customers if a specific credit term is provided
4. Retailers in order to increase customer retention
5. Businesses that procure materials or products before sale

Given all of these facts, is opting for BNPL a wise option?

Just like how the adoption rate grows, so do the risks. One would have to consider all these possible risks before making a choice to opt for this alternative payment method.

The problems generally revolve around consumer debt and financial literacy. While people are aware of how this system works, many are unaware of the consequences of late payments. No matter how many advantages, it doesn’t cover up the fact that this movement promotes consumer debt. It is known that the consumers would tend to buy bigger ticket items when the bill is not issued immediately, thereby increasing the risk of overspending or impulse purchasing. To add more coal to the fire, the interest rates are generally not bound by any consumer credit regulations.

What next?

As the economy reels from the impacts of the pandemic, the future of BNPL firms is unknown. However, for many customers the risks of such services will remain real even if they aren’t immediately prominent.

Another way one can purchase things is by being assured that they have saved up enough to pay the price of the product. Finin can help you save up enough money with features such as budgeting and goal setting where you can track your spends and monitor your finances closely in one space. It also gives you early notifications should you have any payments that are scheduled so that you wouldn’t be shocked by the message of a sudden debit transaction on your phone. Choose your payment options wisely and make sure you become a more financially aware person who can maybe obtain financial independence soon.

Additional reads : Financial independence, but at what cost?

Originally written by me and published at https://medium.com on October 19, 2020.