Buy Now, Pay Later: Is It The Future of Consumer Financing?

There are often so many things that humans want to buy, but excuses such as ‘not enough cash’ or ‘beyond my limit’ take precedence over our wants and needs. In the 21st century, with different financial models rising up to the top, it is not extremely difficult to find a model which works for a generation that is struggling to buy to their’s heart’s content. 

Buy Now, Pay Later, commonly known as BNPL, is a popular payment option that allows the buyer to pay the net amount in installments at the end of a fixed time rather than giving the lump sum when making a purchase. While the model itself sounds grand, it is something that can extend to simple things such as dresses and groceries. In the case of a BNPL, the purchase done does not actually go out from the pocket of the buyer but is intermediated by a company that facilitates this exchange. The total amount is then paid back to the company as decided by you- either all at once or what has commonly come to be known as Equated Monthly Installments or EMIs. 

What is Buy Now, Pay Later?

If threading through technical terms, it can be said that ‘‘Buy Now, Pay Later’ is short-term financing that makes consumers purchase an item in the present and give them the ability to pay it in the future without any sort of interest. As shopping has moved online, BNPL has taken precedence over other financial models because it brings convenience for the customers. 

What makes BNPL better?

The transparency of this method is what makes BNPL a more suitable and sought out the method by the millennials. With something as big as a global pandemic, stock markets had crashed and the economy of our society had come close to crumbling down. In such unclear times, ‘Buy Now, Pay Later’ allowed its consumers to have necessities within their reach while they could pay for such things at a later stage. The actual amount could vary from a mere 500 to some fifteen thousand bucks. 

While in Credit Card there is always a worry of overspending and buying things that exist beyond the limits of an individual and further carries on the interest that grows over time, BNPL allows for a way of spending that has a fixed amount. There is no sudden change or growth of value while paying in installments and it allows the buyers with a surety of what they have purchased. Unlike a cred card purchase, BNPL ensures that the payment detail of any material does not extend forever. 

Expectation vs. Reality

When Buy Now, Pay later was launched, it was believed that this method would be used for the big things- such as technical equipment. However, in reality, BNPL has spread out to something as mundane as a train ticket. The payment method brings forth a way of convenience that was before missing from the knowledge of the general population. The relief that the whole amount need not be with the people and at the same time, the freedom to pay at their own pace makes BNPL a good financial model.

Unlike other financial models which require submitting different documentation, ‘Buy Now, Pay Later’ needs minimal documentation and thus obtaining a loan becomes a quick event. 

The presence of BNPL worldwide

From the company of Tamara in Saudi Arabia which has ties with brands like Adidas and Ikea to Flipkart Pay Later in India, BNPL has managed to firmly establish itself deep into the financial model of the world.  Different mediums which offer the model of BNPL have different rules, but the basic etiquette of having full transparency and dividing the sum of purchase over the course of time remains constant. Companies like PayPal and Paytm have different models which can allow consumers to choose between whichever models suit them best. 

Most famous and well-known companies have begun to offer the services of EMI for certain purchases. They often attach a deal with the options of BNPL to grab some of the best deals for the future. 

Cons of Buy Now, Pay Later

While it is easy to see the advantages of using the ‘Buy Now, Pay Later’ model, the disadvantages that came attached with this system should not be ignored. It would be most inconvenient to actually invest in something without fully understanding the limitations. 

• Because of the varying models and no strict measures in most cases, it can be hard to track how payments are being made. While some companies expect the consumers to balance the money with biweekly payments for a month, others extend the amount over the course of six months or even longer if necessary. 
• While it does give some time to the consumers to pay off their debt, if someone extends the time limit of BNPL it would possibly negatively affect the person’s credit score. Furthermore, while the payment itself does not have any interest rate, the extension of the period certainly has some interest rate. In cases where a payment is missed, there could be a backlog that would negatively affect the credit score.
• Unlike Credit Card, which continues to offer cashback and reward points with each purchase, BNPL has no such formula. It is a straightforward way of payment and the transparency extends both ways.
• In cases where the item may have been found faulty or returned otherwise, it is entirely possible that the payment of the item would continue. In cases it might even become difficult for people to return the item bought due to this limitation. This is a major drawback of using BNPL with any product. 
• In cases of ease, it is entirely possible that the buyer would end up purchasing more than they require or want due to the ease of payment method.

Is it the Future?

The ‘Buy Now, Pay Later’ model is certainly very appealing. Most financial businesses are employing different ways to interest consumers in this scheme. While Millenials have already become comfortable with this method, the next generations will find this method easier to handle. The no-cost EMI certainly helps in making this system very attractive to potential customers. 

With the shift in purchase from the physical world to a virtual one, it is entirely possible that BNPL sees a steep rise in its usage. Already, a good percentage of the population is invested in this method. Thus, it would not be fetching to say that BNPL has a bright future in the financial industry.