For some time now the new acronym BNPL has been in the spotlight, which stands for Buy Now Pay Later and represents exactly what its name promises: the possibility to purchase an asset immediately, but delaying payment.
It differs from traditional financing because it is a much easier operation to activate. In fact, sometimes a simple click is sufficient, and there are no charges charged to the buyer. Typically, we are also talking about limited amounts and very short repayment periods, over three or six months, but there are no exceptions.
We highlighted the features with the support of Cristina Iacob, Commercial Strategy Director, South Europe of Experian.
How the Buy Now Pay Later works
The Buy Now Pay Later is typically offered by a merchant, directly or indirectly. And it is an additional possibility offered to the buyer to customize his payment. When checking out, a person who buys a given asset can decide whether to pay it all right away, or distribute the payment in three installments, without any kind of interest. On the buyer side, convenience is obvious.
On the market side, it represents a way to acquire new customers by overcoming the traditional barrier of physical money availability. For this reason, retailers charge service fees, typically with a percentage on the see.
A market in strong growth
The Buy Now Pay Later is currently one of the fastest growing areas in the fintech world. A key area to consider, both as a new investment opportunity and as a potential long-term impact on traditional operators.
It is a market that is experiencing significant growth linked to the need to install and also to extend essential expenses, as well as the possibility of not immediately allowing for the challenges of its own scope with the awareness that it does not need to have the necessary budget immediately.
According to Iacob, the dizzying acceleration gave the pandemic, which on one hand moved the purchases on the internet, and on the other saw hundreds of thousands of people in great economic uncertainty approach even with ease the This is an increasingly widespread way of paying for so-called leisure purchases, such as travel and consumer electronics.
In the market, the manager of Experian points out, important realities are moving. Some players in the e-commerce, such as Amazon, have proprietary services, but the bulk of the market is run by fintech specialists who operate as it were by intermediaries between the merchant and the consumer, with absolutely remarkable results.
With the explosion of online purchases related to the pandemic, for example, Klarna, one of the most valuable private fintechs in the world and before in Europe, has seen its valuation increase to 45.6 billion dollars.
The Klarna formula, integrated both on e-commerce of large merchant companies, and on platforms used by small exhibitors, such as Shopify and Prestashop, is the same for all: one third of the total cost is paid at the time of purchase,
The Italian scenario
At international level, the first markets that have experienced strong growth in the Buy Now Pay Later phenomenon were the UK and the Nordic countries. It is also from these areas that many of the international players come.
Currently, the Mediterranean countries, such as Italy and Spain, are the ones with the highest growth rates.
Iacob believes that if the use of the Buy Now Pay Later exploded during the pandemic in conjunction with the increasingly widespread use of the ecommerce for purchases, there are numerous examples of Buy Now Pay Later applied to
Among these, Cofidis and its PagoDIL service, already available in stores before the strong global growth of the BNPL.
Currently, even at national level, the main expansion of the BNPL business is linked to the e-commerce channel.
Possible risks of the Buy Now Pay Later and responsible loan
The great simplicity of using the Buy Now Pay Later, often conveyed through dedicated apps, makes this form of purchase as immediate as potentially problematic, with the risk of stimulating over-indebtedness. The removal of the psychological limit of credit availability can push consumers to commit more than they can actually handle.
The fear of economists, he warns, is that this form of financing can in the long run encourage loans that cannot be repaid, generating a sort of bubble. The main concern is that the BNPL is not regulated and that there are no consumer protection clauses, which are encouraged to spend without realising how much debt they are accumulating.
The sums committed through BNPL do not contribute to the Credit Bureau today. Consequently, it is difficult to calculate this debt in the total debt and in the valuation of affordability.
Due to its immediateness and affinity with the digital channel, the BNPL is mainly addressing consumers Gen Z and Gen X. They have been generations with a lower credit history, when they are not completely deprived of it.
The first initiatives in this direction are taking shape. The English FCA, which will begin to monitor and regulate transactions via BNPL by the end of the year. The providers will be required to carry out accessibility checks.
The expectation is that the united Europe will also follow in the process as part of the new EU Consumer Directive. But in general, it is important that these data also converge in the Credit Bureau. Not only for reasons of financial inclusion because of the collection of positive references. Cristina Iacob, also and above all for a general sustainability of credit at national or international level, concludes.