I am worried about Buy Now, Pay Later (BNPL)

Recently I bought something online and was prompted to use Grab’s PayLater feature. It was very tempting as it came with a RM50 rebate for first time users, which is about 10% of the items that I was buying. I did end up using the PayLater feature, but it also prompted me to think deeper about it.

(Side note: I do recommend using e-wallets whenever possible as there are usually lots of goodies including points that comes with it. Read here for the e-wallets that I use)

How many of you use Buy Now, Pay Later (BNPL) services?

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It’s like credit card, but better…

I am a supporter of using credit cards for any spending due to the perks that they offer (you can read all about it here). I only use credit cards like cash, which means I settle the full amount every month.

BNPL is a similar concept. The consumer takes on a loan by purchasing an item now and “promising” to pay up either in multiple instalments or the full amount at a later date.

Unlike credit card, though, there are benefits for using BNPL:

• There is minimal to no credit checks required, which translates to almost everyone being able to access BNPL
• Able to break down purchases into smaller payments monthly with 0 interest, which is akin to banks’ ezy payment schemes, but with wider coverage
• Easier and faster to setup and start using right from your app

This enables more consumers to purchase items that they normally wouldn’t. Something we had to pay RM600 upfront can be paid off over 3 months with only RM200 per month, making it so much more “affordable”.

But is it really?

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The BNPL snowball

The promise of a BNPL to consumers is to make shopping more affordable, but that in itself is just a marketing gimmick.

As a consumer, you either can afford or you can’t afford what you’re buying. It is a delusion to believe that by splitting payments up into smaller sizes makes it affordable. But this is what is happening in the market.

To illustrate,

• You have allocated RM200 to buy a new pair of sneakers.
• Whilst shopping, you came across a sneakers priced at RM600.
• In normal circumstances, you’d probably look at it and then move on to what fits within your budget.
• But now the big BNPL logo appeared and says, “Hey! You only need to pay RM200 per month for the next 3 months to buy this!”
• All of a sudden, you find yourself clicking the checkout button for the RM600 pair of sneakers.
• Then you move on to the next purchase…

That RM200 you committed to for the next 3 months also means that you have RM200 less to spend for the next 2 months. Assuming you have allocated RM200 to buy the sneakers, did you allocate spending of such amount for the next 2 months?

Can you afford to scale down your expenses by RM200 per month for the next 2 months?

What if it did not stop at RM200? There is now an illusion that you have more “buying power” as you are not paying the full amount upfront.

It can quickly spiral out of control, and 3 months is a long time when it comes to spending.

The only thing stopping a consumer from overspending is the BNPL providers’ credit limit, which can be easily circumvented.

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The beneficiaries of BNPL & 1 victim

Obviously, the benefits of BNPL would be most enjoyed by the sellers / business owners as they will see increased sales. Consumers who would not buy from them before, will be buying now as it became “affordable” to them.

Also needless to say, the BNPL providers will benefit from the BNPL transactions as they make money through each spending, which increases over time.

Despite the danger of a BNPL snowball, this can benefit consumers who are disciplined with their spending. Consumers can use BNPL as a way to manage their cash outflow.

The victim of BNPL are consumers who do not watch their spending. When everything becomes affordable, they will increase their BNPL snowball and may even start cutting back on essential expenses to make repayments. BNPL easily allows anyone to live beyond one’s means, which is detrimental to the financial health.

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Closing thoughts

Buy now, pay later (BNPL) is a creative innovation in the Financial Technology (FinTech) space. It serves to help a bunch of people… but maybe just not you.

My view is this… BNPL will benefit those who are strict and discipline with their spending as they use BNPL as a financial tool to manage their finances.

Other than this group of consumers, it is a trap that is ready to snare on those who are not looking. It preys on the consumers’ emotional need to buy something that is beyond their means by restructuring the repayment method. Unfortunately, a lot of those who are poor (and some of the richer ones) will fall prey to these.

BNPL providers will argue otherwise, but to each its own. All I want to say is.. spend wisely and stay cautious.