Amid global cognizance of the debt-trap potential of ‘buy now pay later’ schemes, responsible industry standards could mitigate this payment mode

Buy Now, Pay Later (BNPL) schemes allow consumers to pay using regular interest-free instalments over a limited number of months — an attractive avenue to those reliant on credit for purchases. Additionally, BNPL credit checks are less rigorous than that required for traditional credit.

Now, according to one market research firm’s internal research, escalating financial pressures from the rising costs of living, coupled with increasing demand for cheap credit solutions, are expected to drive consumer BNPL spending up by 291% in 2027; rising from $112bn in 2022.

The projected compounded annual growth rate of the BNPL sector is estimated at 34.22% up to the year 2027. However, the most significant issue currently facing the BNPL providers is its potential for being a debt trap:

    • The lack of thorough credit checks poses a considerable market hurdle, as consumers are being approved for larger loans than they are actually able to repay.
    • The introduction of financial regulations in several countries can help to alleviate this issue. These regulations are similar in nature to existing credit services.
    • In markets where regulations are softer, it is vital that vendors with BNPL facilities act responsibly and clearly communicate all incurred debts promptly to users, to help minimize repayment default rates.
    • The research predicts that BNPL vendors must look to provide services in alternative verticals to diversify their monetization opportunities, as e-commerce becomes oversaturated with solutions.
    • The healthcare sector has been identified as an emerging opportunity for BNPL owing to a lower risk of payment defaults in comparison to the e-commerce market.

According to Dominique Tetnowski, one of the authors of the research by Juniper Research: “Though the future of the market seems unclear given the plethora of impending regulatory changes, enforcing legislation for eligibility checks will ensure the market develops securely.”