Buy now, pay later - the growth and challenges

Has it ever happened that you wanted to buy something but the price was way too much, or you were short of cash? For such time people earlier used to depend upon credit cards. However, it has been noted that the interest rate is quite high on even small purchases, which has led to a decline in credit cards.

Buy Now Pay Later service is the right payment method for such cases wherein a customer can buy anything or take a small loan and pay it back without any interest in a series of installments. This has led to many people shifting to BNPL services, and the adoption rate has increased by 30% since 2019.

The growth factors for Buy Now Pay Later services

  • Mass Adoption – The largest consumers currently on both offline and online platforms are Gen Z and Baby Boomers, and it has been noted that these customers do not have high purchasing power as most of them are just starting out with their work life. Buy Now Pay Later offers high purchasing power to these customers.
  • Interest-free – Most of the shopping items are costly, so the loan amount would be high. If there is an interest on this loan amount, it is hard for the customer to pay it back. This is one of the major reasons why credit card users declined over a period of time, and Buy Now Pay Later service was a huge success. There is no interest charged on the borrowed amount if it is paid back on time to the vendor.
  • Business Integration – Businesses have noted that customers who use the Buy Now Pay Later service have 20% to 30% more order value than customers who use another payment method. Due to this, many businesses are now offering better deals for customers using Buy Now Pay Later as a payment method.
  • Credit Score – Credit Score plays an important growth factor for Buy Now Pay Later service. One should have a good credit score to acquire a credit card or a personal loan. However, for Gen Z and Baby Boomers, the credit score would be quite low as they are just starting with their work life. Buy Now Pay Later service does not require one to have a credit score; all they would need is a bank account and should be 18 years or above to avail this service.
  • Ease of transaction – Most businesses nowadays support Buy Now Pay Later service, and this makes it easier for the customer to acquire electronic gadgets at any time of the day. The transaction can be done by a single click on the smartphone and takes less than 3 seconds to be executed. The GUI of the application is built in such a way that it is easily understandable by both the younger and older generation.

Challenges faced by Buy Now Pay Later

  • Availability of smartphones and internet – Even though we live in a digital age, a large number of people still do not know how to operate a smartphone and how to do digital transactions. Buy Now Pay Later works fully from a smartphone, and thus some of the older generation still prefer using credit cards as they are skeptical of using smartphones for any kind of payment.
  • Not much scope for smaller businesses – It has been noted that Buy Now Pay Later are mostly used by businesses that have high cost on their items however small groceries store, and other departmental stores are still not accepting BNPL as they would be charged 2 to 8% of every transaction by the BNPL vendor who would be a huge loss to them. So BNPL vendors will have to come up with flexible ways to onboard smaller businesses can also be onboarded.
  • Interest rate – Although a customer won’t have to pay any interest on the borrowed amount if instalments are paid on time, if they cannot pay it back, then there is an interest fee. The interest rate starts from 12% to 30% depending upon the amount and the number of installments left. This interest fee is quite high when compared to personal loans or credit cards.

Buy Now Pay Later service is still quite new, and this payment system has huge growth potential. The companies are addressing the challenges faced by the system, and in the long run, Buy Now Pay Later will also be overtaking the credit card industry. So if you have not taken Buy Now Pay Later service, this is the best time to get in as more and more businesses are getting into this with good opportunities.

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