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According to a tracking study released by the research company PYMNTS, “Buy Now, Pay Later” services (BNPL for short) are projected to increase in availability and scope over the next five years. Younger consumers, in particular, are increasingly fond of this payment option over credit cards.

BNPL services and apps offer consumers more choice when it comes to large purchases, and they can be less expensive than using credit cards. However, consumers should still exercise caution when taking this option, because BNPL users may risk accumulating unsustainable levels of debt.

  • Nearly 60% of consumers say they prefer buy now, pay later over credit cards.
  • This preference is especially pronounced among younger consumers.
  • BNPL payments can be easier to manage than credit card repayments, there is a simple approval process, and BNPL options can charge no interest if the debt is paid back on time.
  • However, BNPL services can easily lead to consumers taking out several loans within a short time frame, and landing themselves with an unsustainable level of debt.

The Rise of BNPL

A snapshot of the BNPL landscape is provided by data released by PYMNTS, a market research firm focused on technology and payment systems. According to the company’s Buy Now, Pay Later Tracker survey, nearly 60% of consumers say they prefer buy now, pay later over credit cards. This preference is especially pronounced among younger consumers.

Respondents to PYMNTS’ survey gave multiple reasons for their preference. BNPL payments can be easier to manage than credit card repayments, there is a simple approval process, and BNPL options can charge no interest if the debt is paid back on time.

According to Insider Intelligence, this preference is driving a boom in BNPL services. These services face increased regulation from the Consumer Financial Protection Bureau (CFPB), which has issued plans to regulate BNPL firms much as it does credit card companies. Nevertheless, many new companies have sprung up to offer BNPL services, and the value of the sector is expected to reach $76.20 billion in US payments volume by the end of 2022.

Consumers Should Be Cautious

For consumers, the increased availability of BNPL services represents both a blessing and a curse.

Christine Roberts, head of Citizens Pay, a BNPL service offered by Citizens Bank, recently told CNBC that the reason many younger consumers are attracted to such services are because many watched their parents struggle with credit card debt amid the 2008 economic recession, and many see BNPL services as a “safer” option.

In some cases, this might be true. Many BNPL services automatically confirm your payment details and schedule future payments. This means you don’t have to remember to make repayments for your purchases. Typically, if these payments are then made on time, you’ll pay no interest on your debt.

However, the Consumer Financial Protection Bureau (CFPB) has some concerns about such schemes. They argue that BNPL plans are actually a “close substitute” for credit cards, and that borrowers may receive uneven disclosures and protections.

Borrowers are also subject to late fees if they miss a payment, the CFPB also point out, and many BNPL firms do not take into account a borrower’s ability to repay their loan. This can easily lead to consumers taking out several loans within a short time frame, say the CFPB, and landing themselves with an unsustainable level of debt.

Increased payment flexibility is always welcome. However, though BNPL services may seem to offer a cheaper, safer option to credit cards, consumers should exercise caution when using them.

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