VANCOUVER, B.C .–The rapid growth and an ongoing evolution in the buy now, pay later (BNPL) space was reviewed for credit unions here.
Vasco Gil, risk expert with ITSCREDIT, outlined for attendees of the World Credit Union Conference what has taken place in BNPL broadly.
The appeal of BNPL is obvious, according to Gil: “It’s usually very simple for the user. It’s an alternative to credit cards.”
Big players in the market have already emerged, including Afterpay, Paybright, Klarna and Sizzle, not to mention a late-but-formidable Apple Pay Later offering, as CUToday.info has reported.
An Evolving Market
At the same time the BNPL market has also been evolving, including moving away from a model in which the lenders did not run credit checks. “But now this is starting to change,” he stated.
The product initially appealed primarily to younger buyers—“they see credit cards as an old product”—and has begun to be adopted in increasing numbers by older consumers, according to Gil.
In the U.K, for example, Gil said the data show a change is underway in the average user’s profile, including a “significant increase” in BNPL users among those age 55-65, and a smaller increase in users over age 65.
Retailers, meanwhile, also see advantages in that consumers are more likely to make a purchase if BNPL is available, and the drop-off rate during online purchases is lower for shoppers who ultimately use BNPL, he added.
The Main Risks
“The main risk is if the client starts to defer the payments into the future. It creates high levels of debt, their credit score drops, they pay late fees and interest rates are high,” he said.
For lenders, the three main risks are fraud, credit losses and reputational risk.
Gil said markets are beginning to see more restrictions on lending practices, the information provided and the marketing of BNPL solutions.
“Many issuers were not prepared for the number of customers who went into default, raising credit risk,” he said. “Many major companies and banks have now pushed into the space. We are likely to see a consolidation in this market. The ones that survive will be the ones that tackled these challenge in a unique way.”
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