Buy now pay later…then regret sooner

THE “buy now pay later” financing model is not new. In fact, banks were the first to profit on this type of financing. They gave their credit card customers the option to pay their desired item in periodic payments or monthly installments.

In the past, to have access to this type of financing one should apply for a credit card membership. The application process is lengthy and scrutinous as banks would need to verify the person’s credit rating before they issue the cards to the applicant. Meanwhile, these days the applicant will only need to do a few taps on their smartphones and voila their loan application is already approved in just minutes or at most in 2 days.

Global players of buy now pay later platforms are Klarna, AfterPay, Affirm and Paypal while here in the Philippines are BillEase, Plentina and Atome that are now integrated to well-established e-commerce websites and applications. In addition, Lazada has LazPayLater and Shopee has SPayLater to ride on this growing trend.

Shopify.com says e-commerce sales will hit $5.7 trillion in 2022.

The user interface of these BNPL platforms is intentionally designed to be easy and fast. The goals are to improve customer experience, satisfy their desires in an instant and ensure repeat business. Some platforms require to link a credit or debit card on their system before they approve an application.

These types of loan brokers are unsecured debts similar to credit card debt. Unsecured debts require no collateral for their prospects to avail of their loan services. Unlike a mortgage or car loan, the lender can repossess the asset if the borrower misses a payment.

Their interest fees range from 0 percent to 16 percent per month depending on their prospect’s credit score. This is on top of the processing fees and late payment charges. Most of them are regulated by the Securities and Exchange Commission listed as a financing company.

Why is it a big deal?

With the changes and innovation in technology, many can now avail this financing option especially those people who have nonexistent or bad credit history.

These loan brokers are preying on the Millennials and the Zoomers “influencer lifestyle.”

Upon checkout, the customer will be influenced by his emotions rather than assessing on how useful that item will be once it arrives on his doorstep.

Tracking emotions has become a valuable commodity for retailers, political leaders and con artists. Human emotions are being exploited to manipulate behavior and to influence the decision-making processes of an individual to their advantage as humans act based on how they feel. This study is known as “neuromarketing.”

Emotions on the positive side are used to communicate and to get what they want in their social life.

While continuous spending or increasing consumption will drive the economy to rise, the real income of an individual remains stagnant, in fact, it is decreasing due to the impact of inflation on their purchasing power. Therefore, leaving them with no choice but to borrow money from high- interests type of loans to live on and fulfill their desires.

But aren’t we repeating the same dilemmas that the online lending apps created not so long ago as these platforms are targeting the cash-strapped Millennials and Zoomers, feeding their lack of financial control for instant gratification?

Access to such cheap credit will impact a person’s credit history for the reason that most haven’t built the discipline yet to manage their finances wisely.

BNPL services argue that they shouldn’t be penalized for providing the tool for the public as they communicated upfront all their terms and conditions. And, their customers should be the ones to put the safeguards when it comes to dealing with their finances effectively.

The question is are those people aware of what is good for them or not? Based on our experience, people will opt to borrow money to make ends meet and appease their coveted expensive items instead of cutting back on their consumption and wants.

Therefore, who should we blame for this madness in overconsumption and overspending?

Rosemarie Gases is a Registered Financial Planner of RFP Philippines. To learn more about personal-financial planning, attend the 99th RFP program in January 2023. To inquire, e-mail info@rfp.ph or text at 0917-6248110.

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