What you need to know about ‘Buy Now, Pay Later’

By Kirsty Bisset, HYH Durban MD. Effectively a rebrand and re-imagining of the instalment payment mechanism, BNPL – Buy Now, Pay Later – is providing a new standard for convenience and transparency in the lending process, thanks to more robust and transparent financial software.

The key benefit, especially for those main consumers who are monitoring their spend closely, or who are ‘financially underserved’ or ‘unbanked’, is that BNPL offers no-cost financing options. Generation Z and Millennial customers were among the first to take advantage of this lending option, but older consumers will also contribute to its sustained growth as they begin to understand the offering and the technology. And then, there are those who have, or have had, high credit card debt at much higher interest rates.

Challenges posed by regulations and competition

Retail channels can gain significantly more customers with BNPL, enhance customer experiences, and build loyalty… but there are also challenges. From a regulatory standpoint, there were few limitations for BNPL providers initially. In some markets, however, rules and oversight are expanding, with good cause.

Financially underserved or unbanked consumers often have low levels of financial literacy and would be most susceptible to defaults and unfair lending terms. Education and transparency can reduce this risk, but would likely increase lenders’ costs.

Rising interest rates and a crowded competitive environment are also significant concerns for BNPL. Inflation can increase BNPL and give consumers a significant discount, but merchants or lenders may suffer adverse effects.

There are many opportunities ahead

Globally, BNPL offerings have steadily increased in number and type. BNPL is now available at many retailers. However, it is not completely universal, so there is still room to reach more retailers and merchants going forward. Merchants can benefit from the increased purchasing power provided by BNPL, and integrating tools can help them build better relationships with customers. The merchant can interact with the customer in a more tailored manner by tracking their spending habits or preferences. The ability to use this type of data in partnership with BNPL would make BNPL partnerships more attractive to retailers than creating in-house solutions that might only capture incremental spending.

BNPL won’t disappear anytime soon, regardless of regulatory uncertainties, increased competition or rising interest rates. Transparency will strengthen consumer confidence in lending with regulation. The increase in competition will result in more innovation in the determination of creditworthiness, security, and overall convenience.

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