The BNPL market (Buy Now Pay Later) is new and expanding rapidly, led by industry icons such as PayPal. But already we are seeing threats and potholes.
PayPal reported a 400% rise in BNPL transactions on Black Friday and $1 billion in volume in November. So the BNPL market is in good shape and growing fast.
We have said before that while, at first glance, the BNPL model fits well with Millennials particularly, and many financial institutions are weighing in, there are some real and possibly serious downsides.
Millennials like the BNPL model because it avoids credit card interest, which is fine, but they also like it because it allows them to buy things that they otherwise would not. On the face of it, the BNPL model works well as it shifts the interest element to retailers but it does not in any way mitigate the underlying debt itself.
Millennials, some of whom are now in their 40s, are pretty switched on when it comes to their goals and managing their money. As CB Insights points out, they are the generation that was worst affected by the Crash back in 2008, the problems that stemmed from that recession and, of course, the pandemic. A survey cited by CB Insights points to the average Millennial debt (in the US) being around $87,000.
That is a lot of debt. And when financial instruments like BNPL products are launched, you cannot help but wonder if the intention is to allow a customer segment to keep on buying things that they otherwise would not.
The other factor in the BNPL market is, of course, fraud. Where there is money, there will be fraud.
The most common form of fraud in the BNPL market is good old fashioned account takeover, where bad guys steal account details and go on a shopping spree. A similar method is where fraudsters use personal details to open a new account – and, er, go on a shopping spree.
As we head into the Holiday Season and as there is an urge to splash out a little more post-pandemic, experts are warning that BNPL providers should take extra steps to protect their customers from fraud. Otherwise, they say, customers will go back to credit cards, with their higher interest rates … and make matters worse.
The BNPL market is interesting for several reasons. It increases the payment options, for sure, but it also encourages already debt laden customers to buy that spoiling little extra item.
The jury on whether the BNPL market is generally a good thing, is still out.
The Holiday Season will provide many of the answers.