Convenient and concerning, this is BNPL
We thought it’d be fun to start by charting the evolution of money. Circa 1300 years in circa 100 words? Inhale deeply:
Paper money arrived in 806AD and the next innovation, the printed cheque, took a thousand more years. Wire transfers began in 1872 and credit cards 80 years later. The first ATM arrived in Texas in 1968; swiftly followed by the first automated electronic clearing house in 1970 and electronic payments terminals in 1979.
Interestingly, the first online payment was way back in 1994, and the first contactless transaction 1997. PayPal was born in 1998 and mobile wallets (Apple, Google, Samsung) only arrived circa 2014.
So if you’re keeping score, that’s 1000 years from cash to cheque, 80 from cheque to wire, and less than 10 for mobile wallets to grab near double-digit market share, according to recent YouGov intelligence.
Buy now pay later
From the above timeline, you’ll see that credit cards arrived around 1950 but credit as a concept has been in use more or less since day dot.
“I’ll pay you for it later” has been uttered in hundreds of languages for thousands of years in countless locations and, sure enough, the same YouGov report shows that the rise in mobile payment popularity coincides with a new tech-take on an old credit staple.
It’s Buy Now Pay Later (BNPL) and it’s gaining ground fast.
Online UK payments using BNPL have more than tripled in the last four years, from circa 3% in 2020 to 10% now. The data also shows that BNPL use is more common in households that report a negative change in their financial situation.
In plain English, people who probably wouldn’t have touched (or have needed to touch) BNPL options five years ago, say, are now doing so in increasingly greater numbers.
BNPL boom time
If you don’t know, Klarna is a Swedish payment company and app that lets shoppers quickly and conveniently buy across most online and mobile channels.
In a couple of clicks, Klarna members can pay for goods up front, or opt to pay later; whether that’s in a oner or via an instalment plan. In other words – it’s debt.
Klarna’s not the only game in town but it’s probably the best-known and a beacon for the growth in BNPL. Klarna UK saw 26% growth in gross merchandise value (a measure of how many sales are made through its platform) in the second quarter of 2023 alone.
For a sense of how BNPL is gathering steam more generally, the global market was worth $87.2 billion in 2020 before 43% growth in each of the next two years brought its estimated value to $179.5bn in 2022.
It doesn’t stop there though. By 2025 the figure is predicted to almost triple to $531.53 billion. By then, say analysts, nearly half of all Gen Zs will regularly use BNPL.
Time bomb?
A survey by Credit Karma and Qualtrics in December 2020, before the boom, found that 38% of American BNPL users reported having missed at least one payment.
Open Money research from 2021 (again, before the boom) found that BNPL “tempted” 42% of users to buy something they couldn’t afford and nearly half of those people said they “struggled” to repay that purchase.
That same research found that considerable numbers felt forced to turn to other forms of debt and hardship to make good on their BNPL obligations. Some borrowed from parents, some took out loans and some even shorted their rent.
Let’s again highlight that this data comes pre-boom – a boom we’re slap bang in the middle of now. So there’s a simple equation, here:
More BNPL users + challenging financial times = struggles on steroids. Right?
Debt is debt
Credit itself is not the problem, necessarily. Klarna and other BNPL providers offer a service and that service is proving to be majorly popular, especially in the current climate.
But it has to come with a warning label. BNPL is a form of debt. The majority will service their debt perfectly well but not everyone … that’s how it goes.
One of the fundamental principles of good money management is repaying historic debt and then spending consciously so as to avoid unnecessary more debt in future.
So while BNPL is convenient, and providers are pretty and easy, debt’s debt.
If you can avoid it … probably best to avoid it. If you have to use it, be realistic and only buy what you can afford. Later doesn’t mean never.