Is Buy Now Pay Later Good for The Environment
Any eCommerce and retailer consultant will suggest business owners to offer “Buy Now Pay Later” (BNPL) payment option to their customers. Because it encourages customers to buy more and brings higher sales. But does it help people to spend money wisely on what they need, or push people to consume more blindly? Do you receive any benefits when you use BNPL other than satisfying short-term temptation?
How Buy Now Pay Later Works
You already have credit cards that let you buy now without having enough money in a saving account. So, how is BNPL different? BNPL is managed by third-party credit specialists such as AfterPay and Zip. You don’t need a credit card, but you need to have an account with the BNPL program provider. You may not pay interest on the purchase, but you will pay a fee usually charged monthly. There will be late payments and missed payment fees. If the shop offers BNPL payment options, you can sign up for a new account or use an existing one to proceed to check out. The BNPL program providers earn profit by charging fees to the stores and consumers.
Why Buy Now Pay Later is Popular
BNPL has a soft credit check on your financial records but is not strict as credit card applications. Unlike a hard credit check, this will not dent your credit score. However, if you missed payments, they may report your debts to debt collection, which would affect your credit score. Because BNPL services are mostly for smaller, individual purchases while they offer many of the same benefits as a credit card.
People are searching “buy now pay later no credit check” or “buy now pay later guaranteed approval”. About 20% of customers shopping don’t have a credit card, and about 55% of those with a credit card have maxed out at least one card.
Most BNPL services offer options to pay the full price using the BNPL or split one purchase between BNPL and other payment methods such as a debit card.
A Bit of History
The word, Buy Now Pay Later, may sound not so old, but the same service existed since 1856. The big difference between the payment plans in the past and the current BNPL programs is how people use the payment service. In the past, people are taking payment plans only for long-lasting products such as cars and fridges. Those items are used for years and debt on these items can be considered as an investment. However, people are now using BNPL for disposable items at low cost. This new type of users, purchases, and purposes create a big concern around overconsumption, overspending, and the impact on the environment.
Are Buy Now Pay Later Companies Regulated?
Since new BNPL companies emerged around 2018, millennials (18 to 36 years old) love the service. Therefore, the majority of stores offer BNPL. However, the BNPL sector lost US$1.05 billion in 2021. Within this, AfterPay reported a $156.3 million loss and Zip reported a $652 million loss. While the credit card sector dealt with $15.4 million of bad debts on &56.8 billion of sales, BNPL had $220 million of bad debts on $11.4 billion of sales. The recent interest rate increase also affected BNPL companies negatively and their whole business model is under threat.
With these increasing concerns, the Australian federal government has flagged stricter regulation for the BNPL industry to follow the same rules as credit cards. This means your credit check will soon get reported to the credit bureaus.
Why Buy Now Pay Later is Bad
While BNPL is easier to access and more convenient, there are a few things you need to be careful about.
Encourages overspending: If you are taking debt on fast consumables such as fast fashion and cosmetics, you should start tracking your spending. Australian Securities and Investment Commission (ASIC) reported that 25% of consumers with up to 3 BNPL services were likely to skip payments for essentials such as food and rent. The developed behavior could put you into more debt over time.
Fees: BNPL may offer interest-free, but there are fees. Let’s say a monthly account fee of $5 applies on a $50 purchase, it is the same as paying 10% interest per month.
Can BNPL Help Sustainable Purchases?
You can argue that BNPL can help you to purchase higher quality items for a higher price. Eco-friendly or sustainable products are often produced in small batches with better quality materials and are priced higher. Even though they last longer and can save you money in the long run, the higher price tag makes it more difficult to press the buy button.
Before questioning whether BNPL can help sustainable purchasing or not, there are a few questions you can ask.
Do you need to buy it? Remember, sustainably made high quality and eco-friendly products will be wasted if they are not used enough.
Do you need it now? Simply saving money is the cheapest way and avoid extra fees.
Save Now Buy Later
Save Now Buy Later is a new type of lay-by. This encourages you to save before purchases rather than having them pay them off later. It’s an old system, saving up bit by bit before buying something. This could help you develop good habits, saving and managing money.
BNPL – The benefit is that you can have the item in your hand now. The consequences are extra charges, getting into debt, more waste, and potentially developing a bad habit. You may have purchases that you regret.
SNBL – The benefit is that you can develop a good habit to manage your money and no extra charges. The consequence could be the security of your money in the vendor’s account.