Consumers have new ways of interacting with brands, products, and services and this is all due to something very simple: digital transformation. The expansion of e-commerce has also transformed the economy, which is now increasingly digital and innovative.
The necessity for more agile and convenient solutions, in the way of acquiring new goods and products and in the way of paying for them is real. And at the top of the new trends is buy now, pay later (BNPL), a new form of payment developed by fintechs - financial technology startups - which is increasingly popular around the world.
According to the Commerce and Payments Trends Report 2022 made available by Global Payments, BNPL will be the big payments trend starting this year. And it is expected to account for almost a quarter of all global e-commerce transactions by 2026.
However, this new payment method also comes with risks, which NPLB platforms are trying at all costs to compensate for, but which have generated some controversy in the financial sector. It is worth knowing how it works and what is behind the business of NPLB platforms, as they have a direct impact on brands and consumers.
How does BNPL works?
BNPL is a credit solution like another one, with the difference that it' s specially designed for e-commerce since it provides for fast credit approval. The difference with a credit card is that, while a credit card needs to be approved by a bank, BNPL is a solution accessible to all consumers, integrated into online shops.
BNPL is a type of financing connected to digital payment platforms, which allows buyers to buy a product or service in part and pay the rest in the following months. These are most often interest-free, something much publicized to get consumers to opt for this payment method by default.
It's true that cash payment plans aren't exactly new, and several brands have been allowing consumers to pay for high-value purchases in instalments for years. The difference is that BNPL has taken this concept into the digital age, allowing any brand to offer instalment payments for any product, no matter how cheap, online or in-store.
BNPL: the (im)perfect scheme to reduce the "pain of paying"
The first service of the BNPL platforms consists in acting as an integrated payment platform on the brand's website. The consumer buys on the website, and at the moment of the payment, selects the option to use the BNPL platform and the purchase is made. Everything is integrated, there is no sharing of credit card data on yet another website and everything is - apparently and only apparently - easier.
A method so easy that, according to them, it leads consumers to buy more and more frequently, leading to an increase in revenue for brands of up to 30%. The question is: how is this success rate possible? Because this is a method designed to reduce as much as possible the so-called "pain of paying".
And this hits the sweet spot for consumers. There is a tendency to prioritize whatever brings us the most benefit now, delaying the least good as long as possible. And if, during the process of a purchase, the method is easy and quick and doesn't weigh right down the bank account, even better. Who doesn't like to offer themselves a little guilty pleasure?
The problem comes when consumers lose control of the purchases they make, which explains, in a very succinct way, what is behind the BNPL platforms: it is the "forgetting" to pay the instalments of purchases made previously - or even the total impossibility of paying them - that generates the income from them, as the debt is paid back later with high interests.
Pay attention to the potential dangers
In this bubble of consumerism, one of the great camouflaged dangers of BNPL is just that: accumulated overspending. With the ability to fund absolutely everything, consumers end up spending more money than if they made a one-off payment.
This is still an unregulated model, which may encourage consumers to run up debts. At stake is the uncertainty associated with the conditions of the products or the difficulty in assessing the size of the debt, in the case of short-term creditors.
In the (im)perfect sphere of buy now, pay later, those who are informed and those who are not totally carried away by this dream concept win. After all, this is one more payment method and, as with all methods, one must know how to use it with account, weight, and measure. Although it facilitates purchases, you always must pay for them at some point and you need to keep that in mind.