{"id":56160,"date":"2023-01-26T08:00:48","date_gmt":"2023-01-26T13:00:48","guid":{"rendered":"https:\/\/www.sogolytics.com\/blog\/?p=56160"},"modified":"2023-01-26T15:05:05","modified_gmt":"2023-01-26T20:05:05","slug":"what-you-should-know-about-buy-now-pay-later","status":"publish","type":"post","link":"https:\/\/www.sogolytics.com\/blog\/what-you-should-know-about-buy-now-pay-later\/","title":{"rendered":"What You Should Know About Buy Now Pay Later"},"content":{"rendered":"

Credit card companies (CCCs)\u2014<\/span><\/span>gigantic enterprises generating trillions of revenue dollars\u2014helped popularize<\/span><\/span>\u00a0the notion that it’s easy to spend money you don’t have. Once consumers saw it was a lifestyle reality, they took to it like ducks to water.<\/p>\n

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Traditionally, the CCCs introduce new customers to credit card dependency with a year and a half of zero interest on the debt balances recorded (i.e., under or up to the allocated credit limit). Aligned with the latter are low minimum payments every four weeks. However, once the eighteen-month-zero-interest initiation period elapses, the shock of 19 – 29% APRs instantly bursts the cardholders’ bubbles. By then, they’re deep in red ink and have little choice but to service the top-heavy loans with little to no leverage left for shopping. Moreover, once locked into the CCCs, debit balances can go as high as $40,000 per card, with exorbitant rates draining customers’ resources and no fast resolution to the dilemma.<\/p>\n

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So around 2010, fintech entrepreneurs entered the consumer-lending arena with strategies to disrupt the CCC’s market domination. They categorized their activities as “Buy Now, Pay Later,”<\/strong> or BNPL<\/strong>. Indeed, companies such as the Swedish organization Klarna, Zip, Affirm, PayPal’s spinoff Pay-in-four, and Afterpay (to name a few) offered the buying public the somewhat startling benefit of credit with zero-interest payment plans. Right away, BNPL stood out as a compelling value proposition<\/a> diametrically opposed to CCCs, thus attracting attention from the word go.<\/p>\n

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How did they do it? By partnering with retailers across thousands of brands and a broad range of industries\u2014everything from Peloton bikes to electronics, furniture, apparel, jewelry, and more. All frustrated CCC users had to do was download the applicable BNPL apps for access to paying cards, and voila! They were back into buying mode for small and big-ticket items without a credit check (or a soft one at best). Consequently, even individuals with lousy FICO scores and a sketchy CCC history got in on the act.<\/p>\n

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How big is Buy Now Pay Later?<\/h2>\n

According to a LendingTree poll<\/a>, nearly 42% of America\u2019s buying population jumped on the BNPL bandwagon\u2014<\/span><\/span>a 25% jump in 2022 versus 2021. Also, the global BNPL market<\/a> should generate $22.86 billion in 2022, estimated to reach $90.51 billion by 2029\u2014<\/span><\/span>an eye-popping 21.7% compound annual growth rate (CAGR). And it’s all thanks to Gen Z and Millennial BNPL opinion leaders.<\/p>\n

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In short, the BNPL revolution has hit consumer spending habits spot on, not as a one-night stand but as a sustainable alternative to CCCs. One can go so far as to say it’s a mainstream juggernaut that has redefined online and brick-and-mortar shopping. But, of course, the big question around all of this is whether or not the shift to BNPL carries hidden consumer risks.<\/p>\n

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Comparing BNPL and CCC for transparent risk evaluation<\/h2>\n

Not surprisingly, understanding the risks behind BNPLs begins with assessing CCCs’ lending and making relevant comparisons. Why is that necessary? Because if a service category emerges claiming to be a market disruptor (as is the case here), the usurpers’ pluses should far outweigh the minuses. As we’re talking financing, risk is the best viewfinder. So here we go:<\/p>\n

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