Buy now pay laters' dirty secret

Buy Now, Pay Later’s Dirty Secret

Buy now, pay later offers a way for people to spread out their shopping costs, but is there more happening under the surface?

With Black Friday and Cyber Monday behind us, we can all finally take a collective breath and calm down once again. 

Well, we could…if half of us hadn’t put ourselves into debt while shopping.

Buy now, pay later — but at what cost?

With the rise of buy now, pay later (BNPL) services, it’s easier than ever to hit the instant gratification button and make a purchase. A recent Cardify report stated that roughly 45% of U.S. shoppers plan to use BNPL services in order to spread out holiday spending. 

Ease of use, through well-designed apps and thoughtful browser extensions, and a rise in companies offering BNPL services — which includes Apple, Affirm, and more — has led to an all-time high in compulsive spending. But does this all bode well for the consumer?

In a separate survey, 56% of BNPL users admitted to making a purchase they knew they couldn’t pay off. This poses the question for investors: how comfortable are you profiting off these companies? 

Despite BNPL having been intended to allow consumers to purchase needed items immediately while spreading out costs, some people could still overstretch themselves. While this shouldn’t necessarily be a problem for investors, some might feel uncomfortable knowing that their earnings are coming from consumer debt.

A lot of these companies’ earnings come primarily in the form of transaction fees from vendors, however. While some, such as Affirm, do make money from interest and others charge late fees, the primary mechanism of revenue generation remains rooted in deals with sellers.

However, investors have bought into banks for decades now, which have garnered profit via the same means.  It’s important to note that the underlying ethos of BNPL companies is enabling needed purchases as opposed to building bad debt. 

As such, the means by which BNPL firms make money may not be the moral quandary that some believe it to be.

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