BNPL: The now and the later
I recently read a report from the Citizens Advice (CA) bureau about BNPL in the UK.
Citizens Advice is a network of independent charities that offers support and guidance to anyone in the UK who needs it, and it has helped millions of people.
The report is based on research undertaken with 10,000 UK adults, of which 2,700 respondents had used BNPL. So, the sample size is significant.
It reveals that of those that had used BNPL in the last year:
- 39% used it without realising it
- 40% do not think it is proper borrowing
- 42% did not fully understand what they were signing up for
- 50% have other debt to manage
- 41% have struggled to make a payment
I was fascinated and disturbed by what I read and decided to do some “light” investigation of my own, and here is what I found:
- A tale of two sisters
I asked one of my daughter’s friends what she thought about BNPL.
Daughter’s friend (DF): “It’s brilliant. I love it.”
Me: “Oh, that’s interesting. What do you use it for?”
DF: “I don’t use it.”
Me: “Oh (confused).”
DF: “No, I’m good with money. It is my sister who uses it.”
Me: “Why does she use it?”
DF: “Well, she is not good with money and has lots of debt and can’t really afford things, so she uses it to spread payments, so she can buy the outfits she needs for her nights out. In truth, she sometimes struggles with the repayments… Thinking about it, maybe it is not so brilliant after all.”
The conversation brought to life why so many people who use BNPL are in debt already and why people may struggle to make repayments.
- The tale of the hapless shoppers
No one in my family had used BNPL (or so we thought), so I set my daughters a fiscally controlled shopping challenge on the proviso that they used BNPL and allowed me to observe the shopping experience.
They opted for a popular online retail outlet, found a few things (which took an age) and headed to the checkout. There was an array of options available, including card, PayPal, Klarna and Afterpay. They decided to go for one of the BNPL options and spread the cost over three payments. It was straightforward to set up. The T&Cs are present, but the most visible information was an infographic showing the spread of the payments—the psychology of three smaller amounts against one large was pretty apparent to me.
Post-transaction, worrying about forgetting about the final two payments, my daughter downloaded the company’s app. It is beautifully designed and feature rich. Most surprising, it had a previous purchase on the dashboard for some shoes my daughter had bought. She said she had no idea that she had used BNPL for that transaction (welcome to the 39% club; see above). I could see for myself that the potential to sleep-walk into an agreement was simple.
Between what the CA are saying and my own research, it seems evident to me that this industry needs regulation with consumers needing protection, and it sounds like that is going to happen soon.
Part of that regulation must include rethinking the design and UX, with consumers slowed at checkout. As the CA says in its report: “When it comes to setting up payments or finding information about late fees, there needs to be friction built into the customer journey, making it harder for people.”
Once the regulation has covered the basics, the next step is responsibility. How? BNPL has so far proved to be very successful, and the companies involved could use their scale and resources more positively. Alice Tapper, a financial inclusion expert, pondered on LinkedIn:
“Putting the moral debate and the urgent need for regulation aside, Buy Now Pay Later firms are missing an opportunity… they could decide to move beyond just shopping and put financial wellness at the heart of what they do – to become the financial inclusion and education tool that banks have never managed to be.”
Alice is right. They could help, and their customers need it. They could use their apps as hubs for education and guidance. They could look at the CA report as an opportunity to help those that need it most.
Then, of course, there is saving the world. I recently wrote about how I think BNPL’s current guise may not be fit for purpose in a warming world. It is driving consumerist behaviour; just when Prince William, John Kerry and Mark Carney et al are telling us all we need less, not more, to avoid climamageddon.
BNPL companies could help inform consumers about the carbon impact of the choices that they are making. And like the financial wellness idea touted above, they have the audiences, the clout, the money and the platforms to do it.
It will be interesting to see what happens. Would slowing customers down and providing helpful content negatively impact profitability? Most likely. So, what’s the incentive? Other than being regulated out of existence, perhaps it opens the door to opportunities for new customers.
As you shop and maybe try BNPL, think about what they could do to help you, your fellow humans, and the world we live in.
Any thoughts you might have, do let me know. I can accept one big message now, or three smaller ones spread over three months.
About the author
He is a passionate customer advocate and champion and a successful entrepreneur.