Consumers, Beware of Buy Now Pay Later 

Seemingly overnight, Buy Now, Pay Later (BNPL) companies invaded online marketplaces. From Walmart to local bookstores, consumers now have the option to split the price of a purchase into a few monthly installments, sometimes for no additional cost. A $170 treadmill can become $15 for 12 months, a $300 TV $50 for 6 months, or a $189 multi-cooker $65 for 3 months. Similar to credit cards, BNPL has its benefits. It increases the spending power of a consumer who may not have all the money needed for a larger purchase up front. Being able to spread payments over multiple months means more time to save the money up in full. This means that even with a small fee of a few dollars, it’s still worth it in the long run for many.

The danger lies in it being too easy and accessible. BNPL is advertised and available for more necessary purchases like a new fridge, school supplies, and home goods but also for goods like expensive clothes and gaming sets. While BNPL is theoretically making these things more affordable, it is really luring consumers to buy things they normally wouldn’t or can’t afford.

With little to no government regulation on these relatively new services, BNPL is able to exploit consumers by putting them in a position to risk making late payments. 

In 2021, CNBC reported that adding a BNPL option increases retail conversion rate by 20-30%, a fact that can lead to huge amounts of new revenue and incentivizes online marketplaces to adopt BNPL. Consumers are undoubtedly buying more with this new option, but they aren’t necessarily always paying. Also in 2021, Forbes reported that 43% of BNPL users reported that they made late payments, a staggering amount. Two-thirds say they didn’t pay on time simply because they lost track of when the bill was due rather than not having the cash in hand. Although some relief can be found in this fact, it also highlights that a large part of BNPL business practices revolve around late payment fees which can range from $10-$75. With little to no government regulation on these relatively new services, BNPL can exploit consumers by purposely putting them in a position to risk making late payments.  

Although millennials continue to make up the largest group using BNPL, Gen Z usage is rapidly growing as the generation ages into online shopping and financial independence. BNPL is especially popular with people who don’t have a credit card, a group disproportionately made up of younger Americans. Compared to BNPL, credit cards don’t make it nearly as easy to pay so little interest on purchases over months at a time, but they do come with a wide range of long-term benefits such as rewards points, travel benefits, and increased credit score (assuming on-time payments). BNPL does not offer any of those benefits. It is still yet to be seen whether BNPL will decrease credit card usage by Gen Z long term, however, it isn’t unlikely that some consumers will see BNPL as filling the role a credit card once did. That will keep many young Americans from accessing potential benefits that they may not even know about, harming them financially long term.  

BNPL is especially popular with people who don’t have a credit card, a group disproportionately made up of younger Americans.

All things considered, BNPL poses a greater risk to the American consumer than it appears on the surface. The industry is helping consumers create habits of purchasing things they can’t afford or don’t need and then chasing them with high fees when this habit comes back to bite them. And because of this debt risk, these services are much more likely to hurt people’s credit scores and financial health. BNPL companies are modern and high-tech but are only somewhat better than the exploitative payday loan offices concentrated in lower-income areas across the country. Although they have found a way to appeal to American consumers of all socioeconomic levels, it will inevitably be poorer Americans who face the brunt of new debt created by these systems. The idea of paying for something in installments is not new and in fact can be very powerful for those without the means to save up for large, necessary purchases. However, these companies are inherently predatory in their search for profit, luring consumers in with flashy deals and advertising, hoping they will use their services even when they don’t need them and spend more money than they originally intended.

BNPL is not going away anytime soon, as the industry has been growing steadily over the past 5 years, fueled by the continued growth of online shopping. If these companies are not going away, it is time for the federal government to step up and step in, writing legislation that ensures transparency and fairness in the BNPL service area. Finding the political motivation to do so is likely going to be difficult because of the vast amounts of money the practice is creating for online retailers, but BNPL companies should not be allowed to continue to take advantage of American consumers.