Buy now, pay later, consumer models have taken the US payments sector by storm.
BNPL resonates with online shoppers in the US, who make modest down payments up front and pay remaining balances on scheduled due dates — often smaller payments made over four months.
Currently, BNPL standalone mobile apps such as Klarna, Afterpay and Affirm offer easy to use buy now pay later services.
American consumers love these plans because they avoid large debt obligations, leaving more flexibility in household budgets.
According to a May 2022 survey by Forbes Consultant59% of Americans have either used a BNPL payment plan or plan to do so by the holiday shopping season.
However, BNPL comes with its fair share of risks.
“BNPL can be risky for younger consumers and others who are not accustomed to reading fine scripts,” said Mark Churazak, a partner specializing in financial advisory at law firm Sherman & Sterling. Point at which Piper should get paid.”
Staring at the crystal ball
With BNPL firmly entrenched in the retail experience of consumers, personal finance experts are speculating about what the method will look like over the next year or two.
some of it speculation Falls in the eye-opening category.
Take Debt.com Chairman Howard Dvorkin tracking BNPL trends since Buy Now, the Pay Revolution later. Here’s his view on the next step with BNPL.
– More regulations. “even with [Consumer Financial Protection Bureau] Announcing that it will regulate BNPL-linked fintechs, consumer protection measures cannot come sooner,” Dvorkin said. “With the holidays approaching, the ‘new situation’ could mean a very traditional holiday season: a debt-ridden season.”
– Credit bureaus plan to start reporting BNPL payments, and unpaid payments. With credit bureaus getting involved in BNPL, consumers are exposed to greater risks. “This makes caution even more important when approaching a BNPL, as blows to your balance can limit your finances. and optionsDvorkin said.
– plastic payments. Credit card companies are looking to compete with BNPL companies. This means that consumers have to read at length, ie buy now, and pay for subsequent agreements they enter into with the credit card company. “These agreements are likely to be tougher and have more penalties,” Dvorkin noted.
– High card debt. BNPL users who use their credit cards to cover their purchases are likely to face disruption if the economy occurs Recession. “These users often accumulate debt, and while BNPL services are slow to send debt to collections, credit card companies are fast,” Dvorkin added.
“BNPL is going to be a busy place, with pure plays, unicorns like Grab and financial institutions entering the game,” he said. Innovation Council Senior advisor Ghiathri Gopal.
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But even as BNPL providers adopt rewards and digital wallets, credit card issuers will struggle more for a different advantage, Gopal told TheStreet.
For example, with Apple Pay later (AAPL) Now, consumers will use the existing line of credit to finance the installments.” “What would have been a loan from the credit card company was a BNPL loan through Apple Pay.”
In addition, BNPL Bank does not usually report to credit bureaus, but this is changing.
“Leading providers such as Afterpay, Affirm and Klarna report some loans to the credit bureaus,” Gopal said.
Depending on the terms and conditions of each provider, your loans [BNPL] This can be reported to the credit bureau, which affects your credit score.”
Regulatory lights in special focus
Regulatory scrutiny may be the BNPL’s biggest problem going forward.
“The future of BNPL continues to look bright as segment transactions forecast are the fastest growing new payment option in the industry,” said Jason Bohrer, CEO of the American Payments Forum. BNPL now accounts for 3% of all transactions in the US and [is forecast] to grow to nearly 10% by 2024.”
This growth has attracted the attention of federal government regulators, particularly given that every major payment network operating within the United States has dedicated resources to supporting and growing their BNPL offerings.
“As with most new technologies, the US Consumer Financial Protection Bureau closely monitors the dynamics associated with the BNPL to ensure that appropriate safeguards are in place to protect consumers,” Bohrer said.
“Credit bureaus do not currently count BNPL transactions into an individual’s credit rating; however, they are considering the option of including BNPL data as additional information in the report until a more specific trend is identified by regulators.”
Government regulators have certainly seen BNPL take different forms, especially as credit card companies have started offering their own flexible payment options.
“These trends are likely to be closely evaluated by regulators,” he said. Accumulation of savings CEO Michael Hirschfeld. “Credit reporting is one way to regulate the BNPL industry and is likely to influence a consumer’s decision to sign up. But its full impact will depend on other potential changes in the application and approval process.”
The CFPB plans to start regulating BNP companies and will issue guidelines or rule to align industry standards with credit card companies. “This will be a huge blow to the sector, especially with the evaluation of Clarna, Affirm and Zip,” Gopal said.
Depending on how strong the moves of the CFPB are, the path ahead for BNPL companies could be very challenging.
“Many companies will have to spend more resources in the areas of legal, compliance and risk to navigate the regulatory landscape,” Gopal noted. “Margins will erode, and we could see more mergers and acquisitions in this sector.”