BNPL brings financial and environmental risks

News that BNPL firm Klarna is to start providing information on the use of its services to UK credit agencies highlights growing concerns – not just in the UK – over rising consumer debt at a time of renewed inflation and a cost-of-living crisis. 

Why it matters

Two things. Many BNPL (Buy Now, Pay Later) providers don’t currently conduct the sort of credit checks that would establish if consumers can really afford what they’re buying. Such payments are particularly attractive to younger consumers who may not have the financial nous to manage multiple payments: 43% of US Gen Z users have missed at least one payment, according to a survey by the polling site Piplsay. 

A second consideration is what is being purchased. A survey by provider Afterpay found 73% of its Gen Z consumer spend is on fashion, often high-carbon impact fashion. And, SFGATE notes, ultra-fast fashion trends are being driven by TikTok influencers, who often promote BNPL as an option for their viewers. Conclusion: BNPL is an environmental as well as a financial risk.

BNPL around the world 

• Two in three Americans are now more interested than they were before the pandemic in BNPL and the flexibility it offers as an option for paying for high-cost care like dental and veterinary treatment.
• BNPL is growing fast in Asia-Pacific, with a forecast 33.3% CAGR 2022-28, and providers in the region are differentiating themselves through target markets, online-to-offline (O2O) commerce strategy and fintech ecosystem.
• BNPL offers a solution to Africa’s lack of a “sustainable consumer credit ecosystem”, says Fehintolu Olaogun, founder of Nigerian BNPL company CredPal.
• B2B BNPL is emerging as a short-term financing tool to help small companies manage their cash flow. 

The big idea

Used responsibly, BNPL can be a useful tool for businesses, retailers and consumers. But there’s a danger that a largely unregulated sector may be encouraging excess – and unsustainable – consumption by people who can’t afford it.

Sourced from Financial Times, Sifted, SFGATE, How We Made It In Africa, Opy, The Asset, The Times