If there is one thing that’s more irresistible than the perfect outfit or tech toy, it’s the lure of being able to get it at a bargain.
Shoppers know it. Retailers know it. Credit suppliers know it.
And now they have a whole new financial model to make it easier than ever to attain.
Buy Now Pay Later (BNPL) isn’t a new idea. Ever since the issue of the first credit note – the essential idea of cash itself – lending has made the money world go round.
What has changed is that, through the high-profile, high-value platform of ecommerce, BNPL has adapted into a whole new form of shopping a click or two away. And it has become a mode of shopping that is custom-made, intentionally, with Gen Z in mind.
With large appetites for fast-fashion, rapidly-evolving technological commodities and, in short, anything ‘new’, but with less disposable income than any generation before them, Gen-Zers are the ideal mark for the BNPL transaction.
And it goes deeper than that – BNPL, certainly in the form we find on sites aimed at younger shoppers, is itself a new, disruptive force that is likely to attract younger shoppers for that reason alone.
But ultimately it comes down to saving money at the basket.
Who wouldn’t love to spread a £35 payment over five weeks of £7? It doesn’t sound much at all when you put it like that. Low-cost transactions like that are the bread-and-butter of the sorts of youth-orientated fashion brands like BooHoo and H&M, which actively encourage their young shoppers to pay in credit.
On the face of it there’s no catch. Most BNPL transactions are interest-free, for the shopper at least.
The customer isn’t paying any extra for the luxury, but the retailer is. Every transaction costs a retail interest payments proportional to the basket value.
But that’s just fine with the brands offering BNPL. Generally the extra spend encouraged by this enticing, credit-based method of payment more than covers the interest payments it costs the brand.
So it’s a win-win then? The predictions for the BNPL sector certainly suggest so.
In 2020, driven almost entirely by an increase in online spend combined with uncertainty about the future, BNPL spend hit £2.7bn in the UK alone – quadruple the amount in the previous year.
By 2026, the Financial Conduct Authority (FCA) predicts, this will have hit £40bn annually.
One of the best indicators of how deeply this new method of payment has already reached is the fact that there is now an online supermarket, Flava, based entirely around BNPL. And already the brand has secured deals with some of the UK’s most popular and trusted brands.
The possibility of a bright future for the payment method is also borne out in the interest, and increasing confidence, of mainstream financial institutions including Goldman Sachs, which in early September invested $2.2bn to buy BNPL home loans-specialist fintech company GreenSky.
When mainstream investors like Goldman are getting in on the act, that fact alone is enough to give the medium legitimacy.
Huge investors won’t just bet on BNPL as a payment method and hope for the best – they will shore up their investments with powerfully persuasive marketing campaigns, which the retailers will be only too happy to sign up to.
But despite all of this, the FCA still defines BNPL as an unregulated, unsecured loan. What’s more, the authority is working away on a new set of rules – backed up by legislation – to better protect vulnerable shoppers who could easily fall into the same impossible trap, or series of traps, that any credit scheme can lead to.
Indeed parallels have already been drawn by politicians between BNPL as a method of payment and the worst elements of payday lending. Just as Uber found, legislative obstacles can become unassailable objects to operating in a market.
But whether new rules mean the end of the unregulated boom that both retailers and creditors alike are benefitting from, only time will tell. The chances are that BNPL is here to stay.
In the short term consumer advice sites like Which? are already warning of the grave risks, along the same lines as payday loans and other credit schemes, for the unwary – not least the chance that a shopper could seriously damage their credit score in the meantime.
With another uni year about to start and plenty of parties to go to, dressed to impress, Gen-Zers should be wary at the checkouts.
BNPL is aimed directly at younger shoppers with less disposable income, for reasons that are less to do with their interest as consumers than the huge interest that can be earned with every penny they spend.
In essence BNPL is just another method of buying without paying on the day, adapted for the modern era. And as such it can be approached with the same relish as any other way of spending on credit – provided, like other forms of credit, the potential risks are respected as well.