The hot marketing term this year has a memorable acronym – BNPL. Buy Now Pay later differs from a credit purchase since there’s zero interest charged whether by future monthly installments or future deferred payment of any type. Keep in mind that this is happening in an era of very low interest rates. Brands that offer a BNPL option are not giving up all that much in return for securing a payment today. My mind goes way back to the old ‘Popeye’ cartoon which at times featured a character named ‘Wimpy’ (remember this was the 1930’s). Wimpy was always asking “I’ll gladly pay you Tuesday for a hamburger today”. I don’t recall ever seeing Wimpy pay for anything. Even if he did, it had to be very unsatisfying to pay that bill days after eating the spoils. Obviously, credit cards also offer BNPL, but with interest charged and often at very high interest rates. That makes BNPL better than credit cards for the consumer, at the very least. But like any immediate or more-immediate gratification vehicle – which is what BNPL really is, one of the big drawbacks is using/having something now and paying for it later when it’s no longer shiny and brand-new.
Also, in the ‘Way-back’ marketing machine are ‘Christmas Clubs.’ While long gone, they were essentially a self-induced forced savings plan in which you’d regularly put small amounts of money into in a low interest-bearing account (ok super-low) to be drawn on at Christmastime to pay for holiday gifts. Banks loved Christmas Clubs. All those deposits and so little interest paid out by the banks! Consumers did not love them as much but at the time there was an absence of more creative credit options of today. Thus, Christmas Clubs are no more.
I think people became more accustomed to the concept of BNPL when buying new mobile phones. Buying a mobile phone with a monthly payment is not always a pure-BNPL since sometimes interest is charged. But most carriers do not charge interest. Consumers get it and like it. But what about as you get to month 20 of your 2-year contract to pay off your phone? The phone isn’t as cool as when you bought it and yet you are still paying it off as if it were brand-new. Not all that satisfying for many of us, so we trade in our phones and have another 2 (or more) year contract to pay off our newer and more expensive phone. And the cycle continues.
The same is true of buying something now with zero interest but an agreed to monthly payback plan. It’s cool when you get to use it before paying for it. Yet some of those plans take long enough that you eventually can see a monthly charge on your credit card bill and not remember who or what it was for!
BNPL can’t last long. In a low-interest rate environment BNPL makes sense for sellers as they get to book current business with less risk than in a higher interest environment. Count on the idea that as soon as interest rates begin to climb, BNPL offers will revert to good old-fashioned financing offers like ‘6 months zero interest’.