The growing popularity and the financial risks of “buy now, pay later”

11.08.2021 | 12:52 Home / News / Fintech /
#Buy now #pay later #Fitch Ratings
Experts associate the growing popularity of “buy now, pay later” services (BNPL) with financial risks, Bloomchain.ru writes, citing Fitch Ratings analysts.

Researchers believe that the purchase of goods and services under BNPL schemes has a number of risks due to most market participants failing to pay enough attention when assessing the creditworthiness of users. Analysts also highlight the lack of transparency in reporting on debts associated with BNPL services.

Fitch notes that many companies do not study users’ credit history at all. As a result, BNPL services are often used by financial institutions’ clients with debts, whose level of solvency does not meet the expectations of market participants.

The researchers have also found that installments under such programs may not appear in credit histories. This feature enables market participants to simultaneously issue several BNPL loans. Subsequently, creditors can no longer assess objectively the client’s ability to meet financial obligations.

Another problem that has been stimulated by the growing popularity of BNPL is the increase of spontaneous purchases. It is due to the fact that most of the “buy now, pay later” programs imply an extremely simple loan procedure. Quick access to the purchase of goods through BNPL programs spurs the interest of buyers. At the same time, for the reasons mentioned earlier, the growth in the volume of transactions under such schemes increases financial risks for creditors.

Analysts have noticed the growing popularity of BNPL services over the past couple of years, and they are usually in high demand among the younger generation. Against the background of the growing popularity of the BNPL line, many companies are striving to enter the installment market.

The experts also note that BNPL services have experienced a number of changes. Previously, such programs were designed for costly purchases, but in 2021, many market participants offer small installments.



As Banks.am reported previously, American payment company Square, headed by Twitter founder Jack Dorsey, and Australian online lending firm Afterpay have recently agreed on an USD 29bn acquisition deal for all of the issued shares in Afterpay. Afterpay allows customers to pay in four interest-free installments for an item and only pay commission fee if they miss the automatic payment.



In early June 2021, Europe’s most valuable fintech startup Klarna with its “buy now, pay later” model has closed a new investment round and received the evaluation of over USD 40 billion. Klarna has divided the purchase and the payment. The store received money for the goods immediately from Klarna, and the buyer paid the bank when the order was delivered. According to the co-founder of Klarna Sebastian Siemiatkowski, the business was based on the idea to solve the problem of mistrust between the online store and the customer.

Many Russian companies are also striving to enter the BNPL market. For example, Yandex.Market has recently offered customers to buy now and pay later.

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