Myth busters: Buy Now Pay Later edition

May 31, 2023 | By Ben Gilbey

This article was first published in e27 on May 31, 2023.
Buy Now Pay Later (BNPL), or instalments, have been at the center of much conjecture. In many ways, BNPL is an old concept in a new package; paying for purchases in instalments has been around in some form or another for a very long time. What’s new, however, is how quickly consumers took to BNPL shortly after its re-emergence.

Much of the recent debate has revolved around fears that BNPL is inherently predatory, that the industry is opposed to regulation, or that it will lead to laissez-faire lending and unsustainable debt. For many, BNPL may seem too good to be true.

To be sure, any new payment method, especially one offered by such a diverse range of businesses and institutions, is going to raise questions and face a few challenges. And frankly, they should: if new financial tools never endure proper scrutiny, the market would be awash with risky payment and lending products.

So, while prudence is a good thing, it’s equally important to debunk the widespread myths about BNPL:

Myth: BNPL platforms don’t want customers to pay off their purchases

Reality: Virtually all BNPL platforms take on the buyer’s debt on behalf of the retailer. As such, it’s in their best interest to be both prudent about who they lend to and to have payment terms that will encourage users to keep using their service.

Though some platforms do charge late payment fees, these are typically levied to encourage timely repayment. This contrasts with grey market lenders for whom exorbitant late fees are a key revenue driver.

Myth: The BNPL industry wants to avoid regulation

Reality: In our conversations with BNPL platforms, retailers, and other stakeholders, regulation is overwhelmingly seen as necessary and important. There’s a clear understanding that guidelines will help to ensure that consumers are protected, that unscrupulous operators are weeded out, and that the industry itself can grow sustainably.

At the time of writing, many governments and regulators in the Asia Pacific region are working to develop rules for the industry—typically with the enthusiastic participation of BNPL providers themselves.

Myth: BNPL increases the financial burden on consumers

Reality: While BNPL offers an array of attractive benefits, transparent terms, zero or low-interest rates on purchases, and fast application, this payment method is of particular benefit to younger consumers, people on lower incomes, and those without credit histories.

BNPL allows these groups to make purchases that may otherwise see them clearing out their bank accounts or perhaps turning to less trustworthy lenders for funds. BNPL also offers a valuable opportunity for those just entering the formal financial ecosystem to build a credit history that can then be used to apply for more advanced credit products in the future.

Trust is hard to earn, easy to lose

Security and accountability are the cornerstones of the payments industry. People need to know that their money and transactions are safe, especially in times of uncertainty. In fact, BNPL has grown in popularity because it offers additional flexibility at a time when many people are feeling financially insecure.

As consumers navigate turbulent economic terrain, payment providers must earn their trust by providing services that improve their quality of life without adding financial burdens.

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Ben Gilbey, Senior Vice President, Digital Consumer Solutions, Asia Pacific, Mastercard