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The surge in the 'buy now, pay later' schemeSunday, September 26, 2021
Lately, when you're just about ready to check out your SHEIN cart or purchase a new home theatre system from eBay, you may see the option of financing the cost of your order over time with 'buy now, pay later' (BNPL).
Nothing new under the sun, BNPL is a modern day twist on the layaway option; however, instead of getting the item only after completing full payment, consumers not only get them immediately, but can then split the cost of a purchase over a few weeks or a few months with regular instalment payments.
Instalment plans have been offered in stores before, but usually for major purchases such as furniture, electronics and household appliances that cost thousands of dollars.
BNPL has increased its popularity amid the novel coronavirus pandemic, especially among younger consumers for fast fashion, and an increasing number of companies have started offering the service in the past couple of years for online purchases that can be as low as US$10, or as high as thousands of dollars.
Some of the most popular BNPL providers include Affirm, Klarna, Zip (formerly known as Quadpay), Afterpay and PayPal's 'Pay in 4'.
More established financial companies have jumped on the bandwagon too offering similar loan products such as Mastercard, American Express, Citi and JP Morgan Chase, while Apple is reportedly looking to offer the service as well.
These fintech apps offer sweeteners that credit cards and traditional instalment plans don't — they sometimes include no late fees, low or no interest, high loan limits and no credit checks required. The conditions, however, vary across providers.
Local online and shipping companies such as eZone Jamaica and Mailpac Group Limited have also offered BNPL options.
For eZone, customers can 'purchase' items for as high as $30,000 on its BNPL scheme, which includes Customs duty charges. However, customers will have to pay the amount in full within 30 days before receiving their products, if not the company will close the account and sell the items.
Mailpac Group Executive Chairman Khary Robinson told the Jamaica Observer that the company has paused Mailpac Financing as it looks to revamp the solution with the support of a financing partner and some additional software enhancements.
The solution provided financing up to $100,000 with a three to six month payback, which will change when the programme is relaunched, Robinson said.
“The reception was very good as many people found it great to get instant approval on bulk shopping such as Christmas gifts and back-to-school. The idea that you can get the convenience, variety and savings online and then finance it over a short period fit the cash flow needs of many of our customers,” he told the Sunday Finance.
In dealing with delinquencies, Robinson added, “As incredible as it may seem, we approved over 400 loans in the trial period and didn't have one delinquency. However, there is a unique part of our process that makes it a meaningful disincentive to default. Unfortunately, that is a competitive advantage that we would be unable to disclose”.
Not limited to shopping, BNPL solutions such as Uplift enables travel consumers to purchase airline tickets, cruises, vacation packages, hotels and other travel products via payment plans that can span from a few months up to more than a year.
But analysts are warning that the propensity for spontaneous purchases given the simplicity of the application process and cheaper costs of borrowing compared to credit cards could cause consumer debt and credit card balances to spike as consumers rack up more credit card debt in order to pay off their BNPL obligations.
The volume of US ecommerce payments made using BNPL rose to US$19 billion last year — doubling the US$9.5 billion spent in 2019, credit rating agency Fitch Ratings said, citing estimates from payments company Worldpay.
According to Bloomberg Intelligence, global BNPL sales peaked at US$93 billion in 2020 and could top US$181 billion by 2022.
Even with all the benefits and attractive features, industry experts say consumers should be careful while taking advantage of the payment solution as it is important to note that BNPL is essentially still a loan and therefore the service providers can report one's repayment behaviour to the credit bureaus.