Installment purchases is nothing new for us Brazilians. In the rest of the world, however, practice is not common. She just started making a big deal out of it recently, with a cute name: “buy now, pay later,” or simply “BNPL.” Apple announced its entry into this industry during WWDC with Apple Pay Later. Regulators, however, are concerned about the growth of this market and the risks it brings to consumers and the economy.
In Brazil, the installment is usually done by the store itself, in the form of credit and card, or by credit card.
In North America and Europe, the purchase by BNPL is mediated by a financial company. It can be hired by the store or offer its services directly to the consumer.
Names such as Klarna, Zip, Afterpay and Affirm are present in this market, which now has Apple as a competitor.
At Apple Pay Later, consumers will be able to pay for their purchases in four installments, one in cash and the other three every two weeks.
Paypal, Mastercard, Visa, Citi and American Express have also launched or are about to launch their products.
BNPL gained ground in 2020 with the start of the COVID-19 pandemic. With mobility restrictions, e-commerce purchases skyrocketed, and many people started resorting to installments.
The novelty was well received by consumers, who no longer need to raise money to make expensive purchases, and by shopkeepers, who can make more sales.
In Sweden, 23% of online retail purchases already used BNPL by 2020. In Germany, the number is slightly lower, at 19%. Among U.S. consumers, 37% say they have already split some purchases that way.
In the U.S., this type of transaction has even expanded into healthcare-related payments, which are often very expensive.
Those who are not excited, however, are the authorities responsible for regulating the financial market, as well as experts.
Parcelo, I don’t deny, I pay when I can
There are fears that the indiscriminate use of BNPL will lead to a harmful increase in household indebtedness.
The installment has been used mainly by financially vulnerable families, who may be harmed if they are unable to afford the benefits.
Another demographic that tends to share their purchases are young people. This could hinder good financial education practices, such as planning for larger purchases and having financial reserves, for example.
U.S. research shows that U.S. consumers who spend more of their purchases than cash-paying ones. In addition, about 30% have problems paying the installments, and 32% say they no longer pay rent or bills to prioritize the expiration of installments.
In the UK, BNPL companies will be required to assess whether consumers can pay for benefits before approving transactions.
In the U.S., the issue continues without specific legislation, but government consumer protection and financial services oversight agencies are watching.
