Buy Now, Regret It Later

Buy now pay later (BNPL) seems promising to consumers. The promise of being able to buy what we need now rather than having to wait for payday. Interest free and the cost being divided into multiple instalments, what’s not to like? Similar to Payday Lenders, perhaps there are greater risks to using BNPL’s. Advertised as allowing us to step out of our economic comfort zone and to “shop like a queen”. The reality is, these companies are actually just perpetuating debt.

Apple, a powerhouse company, have announced they are stepping into the ring with existing BNPL companies and trying their hand. They’ve recently announced Apple Pay Later. The service will work using Mastercard’s network and allows consumers to split payments into 4 installments on websites accepting Apple Pay. With approximately 507 million Apple Pay users worldwide, this opens up BNPL to millions of people who previously never considered it. Apple is barging its way onto the market and cementing itself as the dominant company in BNPL. Opening the door of disguised debt to millions of customers.

Is BNPL the new Payday Lender?

We may question whether it is a good move for Apple to dabble in the BNPL sector. Recently, the Financial Times, has reported a BNPL company recently cutting 10% of its workforce. BNPL gained in popularity during the pandemic, in absence of our normal lives we turned to online shopping. We were bored stuck at home, many people got their serotonin from an endless flow of parcels. Now as we emerge out of the pandemic, it seems the cost of living crisis has been waiting in the shadows for us. With the cost of living going up, the willingness to spend money online frivolously is going down. This in turn means the amount of consumer spending using BNPL is decreasing. Society is facing soaring prices of food and household essentials. Additionally, we live in fear of an economic recession due to the war in Ukraine. It is bad timing for Apple to be the new kid on the block when the road of BNPL is facing closure.

As living costs spike, people in desperate situations may find an answer in BNPL. Matthew Upton, director of policy at Citizens Advice reported “We found 1 in 12 have already used it to cover basic costs such as food and toiletries”.  The government has responded to Apple’s recent endeavor, counter-announcing their plans to strengthen rules on BNPL. Lenders will now have to carry out checks on consumers to assess whether they can afford to take out these loans. Mark Dyason, a mortgage broker, has previously spoken out against tightened rules around BNPL. Dyason argues, ‘formalising BNPL debt into affordability checks would disproportionately impact the cost of borrowing for people on lower incomes, as they were more likely to pay for a large goods, such as computers or sofas, in monthly instalments’. This is true that BNPL alleviates some of the economic pressure of purchases, but does this outweigh the consequences?

Make saving trendy again

Frankly, the BNPL sector encourages unsustainable spending habits. You no longer have to wait and save your money to pay for a dress, or a new pair of shoes. Gone seem to be the days of saving over a long period of time to ensure you can afford to treat yourself. We’re in a culture of instant gratification. We are able to get a meal to our door within the hour and a new outfit delivered the next day. Companies are making us impatient and removing any incentive to wait for something we want. Why wait till you have the funds when you can buy now and worry about it later?

Some BNPL companies, use youthful marketing and brand aesthetic, to lure young people into debt. Young people are statistically more likely to use BNPL. The following statistics published by the Telegraph show the % of different age demographics using BNPL:

• 65-74  – 10%
• 55-64 – 16%
• 45-54 – 25%
• 35-44 – 46%
• 25-34 – 49%
• 18-24 – 42%

Young people are being tricked into damaging their credit scores and are at risk of taking on debt. Some Popular BNPL companies don’t display the interest rates customers are charged on their website. With some charging for missed payments, which spiral into a number hidden fees, for example the fee of sending a letter chasing a missed payment. BNPL makes it seem like their services are cheap, easy, and convenient. Customers feel comfortable spending beyond their means and may not even know what fees await them.

Debt advice firm PayPlan said it has seen a 45% increase in people struggling with BNPL during the past year, with young people being particularly affected. The concern is these services encourages people to take on unmanageable debt, not realising they are essentially taking out short-term loans. Martin Lewis, popular financial advisor, has spoken out against BNPL. Lewis argues they are ‘insidiously marketed as a simple payment option, or worse, a lifestyle choice. It’s not. It’s a debt, with all the dangers of debts’. BNPL makes it too easy for customers to excuse excessive spending and now we see tech king Apple jumping on the bandwagon. Perpetuating debt and having profit rather than people in mind. It may be time for these companies to say goodbye now, not later.