“Buy now, pay later” services are huge right now: Apps will offer you installment plans on anything from a TV to a T-shirt.
Klarna, Afterpay, and Affirm are a few big names making millions off of extending a little credit to customers with a plan to pay it back in even-smaller installments over the next few weeks or months.
But whenever a market grows that fast, regulatory concerns will rear their heads. And it turns out that plenty of researchers and regulators are keeping an eye on the booming BNPL business.
BNPL Isn't Bad, Just a Little Questionable
BNPL tools have some big benefits: They're more managable than credit card repayments, getting approved is simple, and you won't pay any interest if you successfully meet all payment deadlines (and the majority do succeed).
But the benefits and downsides to BNPL tools are right there in the name. Sure, everyone loves getting something now, but sooner or later you'll still have to pay for it.
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And by separating the buying from the paying, a business using BNPL tools might create a false impression in the buyer's mind that they're getting a better “deal” on something, which might make them continue spending more and more.
The customer will eventually pay up, but that mental trick puts them at risk. Which is one reason of why Consumer Reports and similar regulatory watchdogs are blowing the whistle now.
What Could We Improve? Nine Problem Areas
Protecting users from overextending themselves on loans is possibly the biggest BNPL policy recommendation being floated in recent weeks.
Also in the running: Protections from data-harvesting, a popular Silicon Valley practice that government regulators have been chipping away at reducing since even before the Facebook Cambridge Analytica fiasco drew everyone's ire back in 2018.
The full list of concerns is a lot longer than those two, however.
Consumer Reports Senior Policy Counsel Jennifer Chien recently published a white paper on the matter, highlighting that the “free and seamless” nature of a BNPL service puts it smack-dab in the “unforeseen risk” category for consumers everywhere.
Here's the list of nine problematic BNPL provider practices to address, according to Chien:
- Wide variance and poor transparency in pricing structures
- Multiple and excessive fees
- Automatic repayments and use of credit cards for repayment
- Limited assessment of repayment capacity
- Inconsistent credit reporting
- Exploitation of behavioral biases
- Data harvesting and data privacy
- Challenges with returns
There are answers for all these issues, from better transparency to credit reporting and stronger data privacy. But we'll need to keep advocating for regulation in the industry to get there.
Buy the Future Now: Pay for It Later
There are currently 79 million BNPL users in the US, according to stats from earlier in this year — an increase of 56.1% over 2022. The BNPL business has cooled slightly in 2023, but some projections still say that about half of all Gen Zers will be using BNPL by 2025.
In other words, we're on track as a society to continue putting off our bills even further into the future.
In a world where potential catestrophy lurks around those future corners, that's not great news. You might be safe from that tropical storm in California or the Maui wildfires, but sooner or later, you'll face your own potential climate disaster.
Adding a bunch of bills to your budget isn't the best preparation — even if they're all really tiny.