Why buying now, paying later is bad – and what you should be using instead
Kendall Flutey is Banqer’s co-CEO and wears a few other hats. All opinions expressed are her own and do not necessarily reflect the various kaupapa in which she is involved.
OPINION: In mid-2019, I wrote a contemplative article about an emerging financial product that was accelerating across Aotearoa: buy now, pay later, or BNPL as it’s known in the industry.
Three years later, as a nation, we raise over $800 million a year through these services – so suffice to say my warning has been largely ignored.
But sometimes messages take a while to sink in, and lately the tide has turned against these fintech darlings. The majority of us are finally becoming aware of the harsh reality of the behaviors that this “innovation” allows.
* How being able to borrow makes us spend more
* Laybuy will cut 45 jobs as it seeks profit
* Buy now, pay later, and all things bad with tech brothers
* Can buying now, paying off loans later, a good idea?
Laybuy has struggled to raise capital, while Afterpay and Klarna have made significant layoffs.
A number of factors contributed to BNPL’s downfall.
Basically the model needs a massive scale to work.
Dean Anderson, Founder and CEO of Kernel, summed it up pretty well when he said, “Reality eventually strikes for any business model that isn’t based on the long-term interests of customers.”
But BNPL is not collapsing quietly, far from it.
So why is all of this really important?
Beyond being a tragic glimpse into the rush to late-stage capitalism by those of us who are most profit-driven, BNPL has done real damage within our communities.
We accumulated a lot of debt, some of us defaulted, and some of this subset were then unable to pay the essentials due to their growing debts.
Even if BNPL were to disappear tomorrow, the change in behavior that it has influenced within our society must be taken into account because, overall, we will undoubtedly have higher levels of consumption and a dependence on the services of short-term debt.
With daily costs increasing, what are our alternatives?
I’ll quickly eliminate the first one, because you probably won’t like it. Some of us could just spend less.
I recognize that for one group BNPL was a critical source of funding (and we hope to provide options for those people later), but for many of us I think if we’re being honest we’d say we have perhaps blurred the lines between needs and wants.
As someone who financially educates hundreds of thousands of children, I feel well placed to tell you that they can do it – and you can too.
Excessive consumption, or instant gratification, is a by-product of the society we live in, so it’s not a “you” problem per se. BNPL feeds on us by forming negative financial behaviors.
Instead of putting money aside to buy something when you can afford it (good behavior), BNPL short-circuited our way of thinking by inserting images of ambitious lifestyles into our social media feeds ( excessive) so that we commit to buying before saving (bad behaviour). ).
They have heavily gamified the spending process and normalized debt to such an extent that many of us do not view BNPL as debt, but rather as an alternative form of payment.
But every dollar we spend today is a dollar we can’t invest in our financial future, so you’ll have to commit to this behavior change. Dave Ramsey comes to mind with one of his most memorable words: “We buy things we don’t need with money we don’t have to impress people we don’t have. don’t love.”
If that resonates, maybe it’s time to make some changes.
There is a place for short-term debt and micro-loans. A sound and fair financial system largely meets the needs of society while anchoring itself on the well-being of consumers. Ideally, we have a suite of no-cost or low-cost alternatives to existing credit products.
As it stands, there are a few well-established vendors that have models that empower and support their customers. The tastes of Small Loans of Ngā Tāngata Microfinance and good loans from Good Shepherd are excellent examples of services for those who need financing options to meet their basic needs immediately.
I was also really encouraged by people like Silver SweetSpotwhich appears to be a significant response to the changing financial needs of Kiwis.
And I’m perhaps the most excited about Fundingwhich represents the right way to layaway, developing savings behaviors in their customers and helping them navigate responsible shopping – and it has financial education built into the app.
There is a future without BNPL, if we choose it
Although the focus has been on BNPL, I think there is a bigger lesson here, one that teaches us all to be alert to the next fintech “innovation” on the horizon. Don’t be seduced by growth rates and valuations, but look at what they allow, the good and the bad. Because the next big thing is coming, and I’d like to think that something good has come out of this tragic three-year financial experiment conducted in the name of profit.
And a final question to merchants who continue to offer BNPL through your online stores, what role do you play in perpetuating potential financial harm to your customers?
Yes, we all want people to love and buy our products, but not if they can’t afford it. I think we all need to take some responsibility for what the future of finance looks like for Aotearoa.