BNPL – Buy Now, Pay Later – is getting a lot of attention at the moment, and some of it is more like intense scrutiny.
The theory is sound but definitely not new. You buy something now, and no one bothers you with interest until the agreed period ends. It is exactly like credit cards were like 20 or 30 years ago. If you paid the whole balance by the end of the following month, then there was no interest to pay.
BNPL players are also attracting the attention of the fintech goliaths (there is now no such thing as a financial institution, they are all fintech companies, ask them). It is an accepted expansion technique. You watch, or possibly fund, a start-up or two in areas that you, said fintech goliath, believe to be worth watching. You allow, in this case, BNPL players to experiment and grow and push the envelope. And then you buy them.
BNPL is an area that is difficult to understand fully.
Yet BNPL is also an area that is causing concern in the corridors of power and almost anyone you asked would have said, ‘I told you so.’
Last week, the US Congress was debating the pros and cons of BNPL. And for the very obvious reason that BNPL is luring young people into spending more than they can afford, it is damaging their credit rating and probably causing mental health problems as well.
And whatever arguments are being put forward by entities such as the Financial Technology Association, it is pretty clear that BNPL is encouraging over-spending.
How can it not?
That the issue has been brought up in Congress is surprising and must point to the seriousness of the issue in the government’s eyes.
Young people spending too much should not, in itself, be an issue. But BNPL is, some would say, not a safe route to go down. It has the feel of fintech goliaths experimenting with something that encourages over-spending amongst young people to grow their businesses, not as something that benefits customers in the long term.