Following our publication on fintech, we would like to explain the Buy Now, Pay Later payment trend in more detail.
What is 'Buy Now, Pay Later'?
'Buy Now, Pay Later' (BNPL) is a type of short-term financing that allows consumers to make purchases and pay for them at a later date, often without interest. Consumers typically make an initial payment for the purchase and then pay off the remainder in a predetermined number of installments.
Usually, BNPL does not affect your credit rating; however, late payments or non-payment can affect it.
In a shop or online, you ask to 'pay later'. If your request is accepted (you are told within seconds), you pay a small deposit, for example 25% of the total purchase amount.
You then pay the rest of the amount due in a series of interest-free instalments. You can pay by cheque or bank transfer; payments can also be deducted automatically from your debit card, bank account or credit card.
Repayments have a fixed schedule, usually several weeks or months. You are told in advance what you will have to pay each time, and it is usually the same amount. This is comparable to any other type of unsecured personal or consumer loan.
In the Fintech Horizon 2021 publication, our Klein Blue analysts predicted the rise of this trend, and this has proved to be true throughout the year as today 12% of retailers in France accept a deferred payment solution.
More than 15 French fintechs are positioned on this B2B2C market, such as Alma, Younited, Finexkap or Pledg. Other fintechs such as Joe offer these fractional payment solutions, but retroactively after the purchase.
We will closely monitor the development of Buy Now, Pay Later solutions in B2B. To date, only four French players have launched in this segment during 2021: Mansa, Defacto, Hero, and Alma, which has just obtained the dual accreditation of payment institution and finance company. It will also be interesting to follow the evolution of regulations related to the BNPL market, which is accused of pushing individuals into overindebtedness. In this respect, the fintech Algoan already allows deferred payment players to analyse the solvency of their customers to limit payment defaults.
Advantages and disadvantages of 'Buy Now, Pay Later'
Advantages:
Convenient and disciplined way to pay for purchases over time
Interest rate often at zero or at least lower than credit cards
No need to have good credit or a high score to be eligible
Quick approval
Disadvantages:
Payments can be difficult to track
Missing or late payments lead to late fees and damage to the credit rating
No rewards or cash rebates on purchases
Payments can continue even if the item has been returned
The idea behind the 'buy now, pay later' principle is that consumers can get the things they need immediately, but have a little more time to pay for them.
These loans allow you to extend your credit - without incurring high interest charges - but with a repayment schedule, so you don't end up in permanent debt.
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