MINNEAPOLIS–While buy now, pay later (BNPL) solutions were introduced to help consumers spread out the costs of big purchases, economists and consumer advocates say they see “red flags” now and big “problems” ahead as cash-strapped consumers increasingly use BNPL for everyday purchases, including even their daily coffee.
That, coupled with a lack of transparency and little regulatory oversight, leaves many wondering just how much debt Americans are actually getting into, reported CNN.
“While other household debt, such as credit card spending and auto loans, is gathered and tracked by the Federal Reserve, Buy Now, Pay Later (BNPL) data is not included because the financing is typically provided by non-bank sources and not yet reported in a comprehensive manner to credit bureaus,” CNN sated. “That means there's no publicly available database of BNPL-related consumer debt levels, transaction volume, delinquency rates, and fees and interest charges.”
"There's no question there's a big hole in our understanding of people's financial situations, if you don't include buy now, pay later," Matt Schulz, chief credit analyst for LendingTree, told CNN. "And that's a problem for credit scoring companies, credit bureaus and for lenders."
$100 Billion Annually
CNN cited data from Affirm and Apple to PayPal and Zip that indicate BNPL transactions are currently estimated to be at least $100 billion annually -- a figure that analysts say could skyrocket to between $1 trillion to $4 trillion within a few years, the news outlet reported.
As CUToday.info has also repeatedly reported, many within credit unions have also expressed their own worries, including the fact members can accumulate plenty of debt quickly and it never shows up in a credit file.
But as CUToday.info has also reported and as CNN confirmed, the three major credit bureaus have said they'll start including BNPL activity on credit reports but they still need to rely on the providers for that information. Currently, some BNPL providers report when payments have been missed or in instances when plans have been paid off.
The Cost to Merchants
“To make money, the BNPL providers charge merchants between 1.5% to 7% of the transaction price, according to Kansas City Federal Reserve research,” CNN stated. “For some retailers, the costs are worth it, according to research from RBC Capital Markets, which showed online BNPL offerings boosted average ticket sales by 30% to 50% and increase the share of customers who ultimately made a purchase.
“Despite its rapid growth, BNPL has raised red flags for economists, regulators and attorneys general,” the report continued. “They've cautioned that because the services are not regulated as credit products, it has resulted in a Wild West-style market with varying terms and conditions and few checks and balances.”
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