Buy now, pay later (BNPL) for anyone born pre 1990 isn’t a new concept. There was a time when putting something on lay by and paying off over time was quite common, then this evolved into “well you can have it now, but promise to pay us back over time, okay?”. This usually involved paying it off in instalments in cash and eventually direct debit.
Fast-forward to 2020, and last week Quadpay announced its partnership with Stripe on its buy now, pay later offering, which goes a long way to intensify the battle with major players like Affirm, Klarna, Sezzle and, our very own AfterPay and Zip (which subsequently also has a holding in QuadPay).
Rather than the painstaking process of remembering to pay off your instalments it’s all automated, integrated with your favourite online and in-store retailers, and the best part is there is no interest! With this model, the retailer foots the bill, you get your product quickly and, as long as you pay the instalments on time, you only pay what’s on the price tag.
Where is the traction coming from?
Well, revenue numbers from all the major BNPL players continue to grow rapidly, so adoption has been strong both locally and in the US, where Afterpay took its product back in 2018, starting with a partnership with Urban Outfitters. Chinese internet giant Tencent recently took a 5% stake for $300m in Afterpay, while Zip, listed on the ASX, is worth in excess of a billion dollars so clearly there’s confidence in this product offering.
The target market?
The younger more tech savvy demographic who have less disposable income and likely less patience to save, then buy. Another demographic are those living paycheck to paycheck, every week of the year, it really can be a saviour to split payments up.
There is a warning however that debt, as history tells us, can accumulate and often get out of control, so is making debt easily accessible a good idea? Well, there are limits to what value customers can access via these companies, but penalties for late payments can start to escalate.
The question is; is this the new norm where the next generation buy now, pay later for small value items? Many of us will no doubt have been told by our parents that they saved up money for a car before they bought it, they didn’t get a loan or utilise lease arrangements.
There are tech companies like DailyPay and Flexwage that give you access to your wages as you earn them, but does all this technology give us financial wellness through control or are we dressing up debt in a different outfit? Is it a gateway drug into credit card debt for younger generations?
Our thoughts are, as with anything, that education is key and these can all be really handy tools to get you that new pair of trainers, headphones, Mother’s or Father’s Day gift, but it is critical those customers know the impact of late payments. Do we do enough now to educate children to give them the knowledge that they need to be financially savvy?
Default rates will be key to watch especially as government schemes dry up and unemployment rates rise, will these BNPL tech companies be able to absorb bad debt and continue to grow into profitability?