The dark side of ‘buy now, pay later’

Ready for a fun stat? One out of 3 millennials say their biggest fear is credit card debt (more than death or going to war).

If that sounds like a business opportunity to you — you’re not wrong.

According to prof. G (AKA Scott Galloway), that fear has helped fuel monster growth in “buy now, pay later” (BNPL) services, with 75% of users in the US either millennials or Gen Z.

The ironic part?

BNPL is still a form of credit, which brings to light the questionable marketing practices used by key players — Affirm, Afterpay, and Klarna — to attract new customers.

For the unfamiliar, BNPL services allow consumers to purchase products in installments, typically paying 25% up front and the rest in 3-4 payments over a fixed time frame. Users that miss payments are typically charged either interest or late fees.

On the consumer side…

… BNPL companies highlight how the fixed payment structure is safer than using credit cards because users:

• Pay a percentage of each purchase up front
• Can’t roll over their balance and continue racking up debt
• Get cut off if they miss multiple payments

But BNPLs offer a conflicting pitch to merchants. Namely, that their technology causes users to spend more than other shoppers:

• Klarna touts its ability to boost average order value by 41%
• Affirm claims it increases average order value by 85%
• Afterpay cites a 17% increase in shopping cart volume and a 12% boost in sales

The result?

Many users are landing in the same place they feared with credit cards — in debt. Case in point:

• In Australia, 15% of BNPL users had to take out a loan to pay off their purchases
• One UK bank reported 10% of users who made BNPL payments overdrew their checking accounts in the same month

The lesson? Before you BNPL, make sure you have the funds to PL.