THINKUP - Nota de blog 06

Buy Now, Pay Later Revolution

Tech is changing everything, including industries such as finance and banking. Nothing seems to remain untouched. Technology is pushing services such as buy now, pay later, to move at a quicker pace and with greater ease. The traditional forms of banking and payment structures can no longer survive in the wake of automation and technology-driven solutions.

Buy now, pay later has been a service for quite some time; however, it’s picking up speed and popularity with companies and businesses on a global scale. Due to our current economic situation and after a global health emergency, money has to be more readily available and accessible regardless of the payment method used.

From digital wallets to credit and debit cards, even Bitcoin, money is moving faster than you can blink your eye. So let’s explore the rise of buy now, pay later and what it means for the finance industry and its consumers.

What is Buy Now, Pay Later?

Buy now, pay later (BNPL) is exactly as it sounds. Buy a bike today and pay for it at a later time. In this case, the time frame for repayment is between 14-30 days after your purchase date. Once you make your down payment, you can take home your purchase the same day.

 

The structure of this payment is to pay in installments until you have paid the total amount owed. In most cases, the payments are interest-free.

BNPL is becoming more favorable as a means of payment on a local and global scale. Splitting your purchase into smaller payments is more available for online stores, eCommerce websites, and mobile applications through third-party platforms such as Afterpay.

Advantages and Disadvantages of BNPL

When weighing your options, there is always the good, bad, and ugly. So, you may be thinking, what’s in it for you, and what exactly are the downfalls of this system? Let’s take a look at the downsides first.

When you apply to use the BNPL, they will run a soft credit check which won’t affect your credit score. This will determine your spending limits set by the platform operating the transitions. Due to the spending limits, you’ll be hindered from potentially making bigger purchases. Some of the other pitfalls include the following:

  • BNPL may not be an option for some online retailers
  • Consumers cannot participate if they have little to no credit or may encounter lower spending thresholds.
  • The potential to negatively affect your credit score if you don’t pay on time.
  • Late fees. While you’re making interest-free payments, a missed payment can result in late fees and penalties.

So what are the benefits of this payment system? For starters, you don’t have to pay in full right away! For many customers, especially during these economic times, buying what you want or need without worrying about having the money upfront is a godsend. With inflation soaring, it’s difficult for consumers to stretch their money, including cash for groceries. With this payment option, more people will have access to daily necessities. Other benefits include:

  • Interest-free. Pay only the ticket price plus any local taxes.
  • Pay in installments. No need to have all the money upfront.
  • Build your credit. This payment system can help increase your credit score, therefore improving your buying power for purchases such as homes and cars.
  • Promote financial literacy and inclusion.

While there are many concerns surrounding this payment option, such as consumer risk and use, those concerns can be addressed through further financial education on how BNPL platforms work. With any creation of new technology, companies must consider these factors and work to protect the general public’s best interest.

Of Course There’s an App for That

Several buy now, pay later companies are leading the way in this payment option. BNPL platforms are cropping up as fintech, payment apps, and mobile banking development increase. And it makes sense as this market is expected to grow substantially in the next six years. Some of the most popular BNPL platforms include:

  • Afterpay
  • Alliance
  • Klarna
  • Sezzle
  • Paypal in 4

Each of these buy now, pay later companies have different processes and procedures. So when considering which platform to go with, consider your needs and compare that with what each platform offers.

Larger Companies Are Catching On

Big credit card companies such as Visa are giving BNPL a go by partnering up with Nuvei and Tender Retail to expand buy now, pay later options in Canada. The partnership will allow Canadian retailers and stores to offer the payment service to include more credit card holders.

Apple has also thrown its hat in the ring and will enable its Apple Pay sometime during 2023. Set to initially launch in 2022, Apple Pay is said to be interest-free and eliminates any kind of fee. Customers would have six weeks to pay for their Apple Pay purchases.

These are not the only companies hopping on board; even car companies are giving this payment system a try. For example, Honda Cars India has launched their finance scheme called ‘Drive in 2022, Pay in 2023’. This offer is for those looking to purchase a vehicle in India.

Customers who purchase selected Honda models have the option to pay for the vehicle in equal installments beginning in 2023. This will apply to any certified Honda dealership within the country. The aim is to increase sales and offer a cost-effective way for customers to purchase and pay for a Honda.

What’s Trending for Buy Now, Pay Later in 2023?

As mentioned, BNPL will continue to grow over the coming years as more companies incorporate flexible payment services into their offerings.

More Options

The growth will not only be in new business but also the number of categories buy now, pay later encompasses, such as travel and groceries. The more available and secure BNPL platforms become, the more categories will become available to consumers. As a result, we will see more companies offering this form of flex pay.

Increased Regulations

However, as this repayment method reaches more popularity, more financial bodies are concerned that it could place consumers at risk of spending more than they can afford to repay. Buy now, pay later is still considered a line of credit. So it’s important to note that being financially responsible can help build your credit and save money. So we’ll see more regulations by the companies themselves or other governing bodies.

In-Person Purchases

Retailers are starting to take the idea to their in-store purchases. As a result, we’ll see this flex pay option when we shop in-person. From the supermarket to the hardware store, BNPL will gain more presence among more physical locations.

Where Will the Rise of BNPL Lead?

There are many benefits and concerns to the buy now, pay later model, but one thing is sure, more people want to be flexible in how they spend and where. Convenience is a driving factor for many, and the fintech world is trying to meet those demands. So we’ll continue to see BNPL rise and evolve with time and make its mark on digital translations and payment methods as more financial solutions are discovered.

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