There is no doubt that the COVID-19 pandemic has accelerated all forms of online shopping, digital business, and e-commerce, especially due to its convenience and the fact that it complied with social distancing regulations. In fact, according to a study done by McKinsey, this is now the new reality – over three-quarters of buyers and sellers have admitted that they prefer digital engagement over face-to-face interactions when making sales. With more people online than ever, this has led to new ways of making purchases online. Aside from using credit cards, debit, or bank transfers, customers can now opt for Buy Now, Pay Later (BNPL).
Much as its name suggests, BNPL is a kind of short-term financing where buyers can make a purchase and then pay it back in installments later. Even better, these installments tend to be interest-free too! This is a great way for buyers to delay a certain payment or spread-out payment over a period (usually 30 – 60 days). Whereas the seller can get paid immediately via the BNPL provider, they choose (such as Biller).
Despite all the benefits that BNPL can give buyers and sellers, there remains to be a lot of myths and misinformation regarding this new type of payment method. That is what this article is attempting to debunk. After reading this, you will better understand what BNPL is and what it is not. So, for those who are interested, let us read more below!
BNPL is only used for lower-value purchase
This was the case in the past, especially concerning buying things online. However, this statement is only partially true right now. While some people use BNPL to buy low-value and inexpensive purchases, studies have shown that the average purchase made using BNPL was similar to a credit card. So that makes it around £65, or roughly $80. Surprisingly, 95% of BNPL purchases are made to buy items that cost £180 ($220) or less. However, some purchases exceeded this amount – with a few shoppers using BNPL to buy things that cost up to £2,000 ($2,449).
In the future, customers will slowly use BNPL to buy higher-value purchases as BNPL services are rolled out, and more people will trust it. This, therefore, allows consumers more alternatives to spread the cost of what they buy, but it may also lead them to buy more. Therefore, it is wise to keep an eye out regarding how BNPL is doing and what the trend is for the future.
Only Gen Z and young shoppers use BNPL.
Because BNPL is a new purchasing method, most people might be inclined to think that young people and Gen Z shoppers are the only people who use BNPL. This could not be further from the truth. According to statistics, while young shoppers tend to be slightly more represented, all ages still use BNPL. That is to say, BNPL is quickly going mainstream. The average age of customers tends to be 35 years old, with the fastest-growing demographic being people aged 55 and over. This is because BNPL is very easy to use, especially during checkout. This, therefore, allows it to have an extremely broad appeal to people of all age ranges. Moreover, BNPL purchases tend to be influenced by life events rather than age. For instance, while students tend to buy textbooks, bags, and stationery, middle-aged professionals may pay for furniture or other more expensive purchases.
Users have high credit risk.
This is not true at all. High credit risk levels are low regarding BNPL users. However, this statement is still widely tossed because BNPL is new. Therefore, it has to unfairly contend with the perception that it is less legitimate than other forms of online payment. BNPL users have strong credit histories, with 7 in 10 having a good or excellent credit rating. BNPL users also have the markings of those with solid credit histories – two-thirds of them have a college degree or more, with almost 60% being homeowners. Other three-quarters of them are the financial decision-makers in their household.
BNPL will lead to the death of credit card
There is no doubt that BNPL is growing fast, but to say that it will lead to the death of credit cards is a bit of an overstatement. As of now, there is no evidence that this will be the case. Most data has yet to show that consumers choose BNPL over credit cards. While credit card spending was below the levels before the pandemic, credit card borrowing was surprisingly higher in the first quarter of 2022.
Data from BNPL spending can also be shared in the credit system so lenders – both BNPL and traditional providers – can better understand someone’s credit history and risk. As such, providers can use this information to know what people are spending their credit on and manage customers who may take on credit they cannot afford.
BNPL is a fad
One of the most prevailing myths regarding BNPL is that it is just a fad. According to this myth, once Millennials and Gen Zs no longer see the appeal of BNPL, it will be forgotten and thrown away. However, research suggests that BNPL will likely stay for quite a while. Rather, the use of it is doubling and growing rapidly. Amount’s survey ranked BNPL as the number one preferred method of paying for something, beating out long-standing methods such as credit and debit cards, in addition to PayPal and Venmo. Among rich households, BNPL is also a preferred form of payment. 87% of households that earn over $100,000 in annual income have a higher level of interest regarding BNPL. With so much interest from many people, BNPL seems to be staying for quite some time.
BNPL encourages too much spending and borrowing
The main unique selling point of BNPL is that it allows customers to pay for their purchases in installments later. However, some worry that BNPL may encourage too much spending and borrowing, especially because most of it is interest-free. Most BNPL service providers will freeze your account if you default on your scheduled payments. If you default too often, your account may even be banned. Contrast this with credit cards, even if you have defaulted on many payments. You are still allowed to borrow money through the card. As such, there is no need to worry about BNPL getting you into skyrocketing debt.
