Buy now, pay later consumer models are taking the US payments sector by storm.
BNPL resonates with US online shoppers, who first make a modest upfront payment and pay off the balance on set due dates – often smaller payments made over four months.
Currently, stand-alone BNPL mobile apps such as Klarna, Afterpay, and Affirm offer easy-to-use Buy Now, Pay Later services.
American consumers prefer these plans because they avoid large debt obligations, allowing more flexibility in the household budget.
As per the survey of May 2022 forbes advisor59% of Americans either use a BNPL payment plan or plan to do so by the holiday shopping season.
However, BNPL comes with its fair share of risks.
“BNPL can be dangerous for young consumers and others who are not used to reading the fine print,” said Mark Chorazak, a partner specializing in financial advice at the law firm Shearman & Sterling. “All those little payments add up. And at some point Piper will have to pay.”
gazing at the crystal ball
With BNPL’s consumer retail experience solidifying, personal-finance gurus are speculating about what this approach will look like in the next year or two.
some of that Estimate Comes in the eye opener category.
Debt.com President Howard Dworkin is tracking BNPL trends as the Buy Now, Pay Later revolution begins. Here’s his perspective on what’s next with BNPL.
, more rules, “Even with [Consumer Financial Protection Bureau] Announcing that it will regulate fintech companies belonging to BNPL, measures to protect consumers cannot come soon enough,” Dworkin said. “With the holidays right around the corner, the ‘new layaway’ means a very traditional holiday. The season of may: one full of debt.”
, Credit bureaus plan to introduce reporting of BNPL payments and non-payments. With credit bureaus joining BNPL, consumers take on an even greater risk. “This makes caution even more important when approaching BNPL, as the ding to your credit can limit your financials” alternativeDvorkin said.
, plastic payment, Credit card companies want to compete with BNPL companies. This means that consumers must pay for any purchases they have made with the credit card company at a later date. “These agreements will probably be tighter and have more penalties,” Dworkin said.
, high card debt, BNPL users who use their credit cards to cover their purchases may face financial turmoil recession, “These users are almost always racking up debt, and while BNPL services are slow to send loans into collections, credit card companies are quick,” Dworkin said.
“The BNPL is going to be a crowded space, with pure-plays, unicorns like Grab and financial institutions entering the game,” he said. innovation board senior consultant Gayatri Gopal.
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Gopal told TheStreet that even with rewards and digital wallets being adopted by BNPL providers, credit card issuers will struggle more for a distinct advantage.
“For example, with Apple Pay Later” ,AAPL, Now, consumers will use their existing credit line to fund the installments,” she said. “The loan I could have had with the credit card company is a BNPL loan through Apple Pay.”
Additionally, BNPL is usually not reporting to credit bureaus, but this is changing.
“The major providers like Afterpay, Affirm and Klarna report some loans to the credit bureaus,” Gopal said.
“Based on the terms and conditions of each provider, your loan [BNPL] What may affect your credit score may be reported to the credit bureaus.”
Regulatory spotlight in special focus
The regulatory scrutiny could be the biggest BNPL issue going forward.
Jason Bohrer, executive director of the US Payments Forum, said, “BNPL’s future looks bright as transactions in the forecasted region are the fastest growing new payment options within the industry.” “BNPL now represents 3% of total transactions in the US and [is forecast] To grow to about 10% by 2024. ,
That growth has attracted the attention of federal government regulators, especially given that every major payment network operating within the US has dedicated resources to support and grow its BNPL offering.
“Like most new technologies, the US Consumer Financial Protection Bureau is closely monitoring the mobility associated with BNPL to ensure that appropriate guardrails are installed to protect consumers,” Bohrer said.
“Credit bureaus are currently not including BNPL transactions in the credit score of an individual; However, they are considering the option of including BNPL data as supporting information on the report, until a more definitive direction is established by regulatory bodies.
Government regulators have certainly seen BNPL taking shape differently, especially as credit card companies have started offering flexible payment options of their own.
“These trends will likely be assessed more closely by regulators,” said earn savings Chief Executive Michael Hershfield. “Credit reporting is one way to regulate the BNPL industry and will influence a consumer’s decision to sign up. But its full impact will depend on the application and other possible changes to the approval process.”
The CFPB plans to begin regulating BNP companies and will issue guidelines or regulations to align sector standards with those of credit card companies. “This will be a major setback for the sector, especially with the fall in valuations of Klarna, firm and zip,” Gopal said.
Depending on how aggressively the CFPB moves, the road ahead for BNPL firms could be highly challenging.
“Many firms will have to spend more resources in legal, compliance and exposure to navigate the regulatory landscape,” Gopal said. “Margins will come down, and we may see more mergers and acquisitions in this area.”