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In recent years, Buy Now, Pay Later schemes have taken over online shopping; trending with consumers, investors and regulators across the globe. With this reinvention of an old product onto new and exciting digital platforms, how much debate is being had around whether the creation of such technologies is truly in the best interests of the consumer?

What Is Buy Now, Pay Later?

Buy Now, Pay Later (BNPL), is generally defined as a payment service which allows consumers to delay payment or to pay in instalments. Also known as point of sales credit, some BNPL schemes give you 30 days to pay, while others can allow up to 12 months. Since mid-2016, the number of customers using BNPL services has risen from 100,000 to over 5.6 million, with these rising platforms having captured the key millennial market.

While this payment method can be used at some high street shops, it’s more commonly used by online retailers aimed at young people and families. Some of the main BNPL FinTech providers are Klarna, Clearpay and Laybuy, with the best-known player, Klarna, already boasting over $9.5 million customers in the UK alone, and opening 95,000 new accounts weekly.

And the opportunity for BNPL providers is even greater still, with a recent Bank of America study predicting the market for these services to grow between 10 and 15 times its current size by 2025.

The Benefits Of Buy Now, Pay Later

As with all financial innovations, BNPL schemes benefit consumers. They create accessibility with the financial services landscape – something which hasn’t been synonymous with the industry in the past. They make budgeting for expensive, ‘quality of life’ products, such as mattresses or washing machines, simpler. There’s no jeopardy to your finances in the short term; and they cater towards the tastes of a generation craving instant gratification, resulting in a greater customer experience.

Buy Now, Pay Later Regulations

Recently, there was news that the sector would be brought under the regulation of the Financial Conduct Authority, meaning providers would have to undertake affordability checks and guarantee fair treatment of consumers who are financially struggling.

Financial campaigner Alice Tapper, who created the personal finance hub Go Fund Yourself, wants BNPL products to fall under the jurisdiction of the FCA. While these services have their benefits and can be valued by customers, Tapper believes that the lack of regulation around them is ‘concerning’, as there’s ‘little requirement for risk-wording, both at check-out and within adverts.’

“To be clear, these products absolutely have value for some consumers, my concern is the lack of regulation around particularly unregulated BNPL products, because they fall into a gap within the consumer credit act, which has an exception clause that originated back in the ‘70s. We’re now in a time where technology has come so far, credit itself can be accessed on-demand, and regulators have not caught up.”

Alice Tapper, Founder, Go Fund Yourself

This lack of risk-wording means that consumers who have been heavily promoted these services may not be fully aware of their nature – for instance, that they could end up in the hands of a debt collection agency.

Is ‘Buy Now, Pay Later’ Ethical?

Although the benefits of such services can’t be ignored, there’s a darker side to BNPL, with the modern product representing the modern values of lavish lifestyles, products, and instant gratification. By promoting the mentality of worrying about the cost later, tracking spending and repayments can easily spiral out of control and become complex.

This difficulty is represented through 1 in 6 customers who report that they are overdrawn on their BNPL account. Not only this, a 2020 GlobalData survey found that 52% of BNPL shoppers had at some point been unable to make a payment through a credit plan they’d used. From these statistics, we see how such schemes are worryingly enabling consumption beyond people’s means, whilst at the same time obscuring the realities of taking on debts.

“In my opinion, BNPL schemes can be at risk of encouraging ‘bad debt’. They can be risky in that they invite people to spend money that they don’t yet have.”

Harjit Moore, Co-Founder, Freeze Debt

Ultimately, BNPL services offer many incentives for the consumer in the short term, through being affordable, having no interest or fees, and no impact on credit scores; making BNPL a market which is in high demand. However, they also promote irresponsible spending and enable many to rack up debts.

The question of whether such services are ethical remains largely dependent on whether you see spending what you are unable to repay as the responsibility of the consumer, or the provider. Saying this, given that these services currently remain unregulated by affordability checks, credit limits, fair treatment for borrowers struggling to pay, and so on, accountability for irresponsible spending and debts currently falls with the providers – at least until such jurisdictions are in place.

For more on the FinTech space, take a look at our recent article: will embedded finance change the future of FinTech?

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