‘Buy now, Pay later’ is not without its downside!

Credit card debt is the biggest fear of one third of millennials (more than death or going to war). You are not wrong if you think that sounds like a business opportunity.

The fear of financial ruin has helped fuel the growth of “buy now, pay later” (BNPL) services, with 75% of users in the US belonging to the millennial generation or Gen Z.

Ironic, isn’t it?

Affirm, Afterpay, and Klarna use questionable marketing practices to attract new customers with BNPL, which brings to light their questionable marketing practices.

In case you’re unfamiliar, BNPL services allow consumers to purchase products in instalments, paying 25% up-front and the rest in a fixed number of payments over a fixed period. Late fees or interest are typically charged to users who miss payments.

From the consumer’s perspective…

The BNPL companies emphasize how using a fixed payment structure is safer than using credit cards because:

• Pay a percentage of each purchase in advance
• Can’t roll over their balance and continue accruing debt
• If they miss multiple payments, they are cut off

However, BNPLs offer merchants a conflicting pitch. They claim their technology causes users to spend more than other shoppers:

• Klarna boasts its ability to boost average order values by 41%
• Affirm boasts that it increases average order values by 85%
• Afterpay reports a 17% increase in shopping cart volume and a 12% rise in sales

Using a debit card leads to the same result as using a credit card – debt. Case in point:

• 15% of Australian BNPL users had to take out a loan to pay off their purchases
• An UK bank reported 10% of customers who made BNPL payments overdrew their checking accounts in the same month.

The lesson? If you plan to BNPL, make sure you have the funds to do so.