The fastest-growing form of debt

Buy-now-pay-later, or BNPL, is a rapidly growing but controversial way for consumers to borrow money to pay for goods and services. Think of it as the Gen Z credit card.

Why it matters: The young BNPL industry has yet to be tested through an economic downturn. The next recession, if and when it comes, could put serious strains on borrowers and lenders alike.

The big picture: BNPL has emerged as one of the most convenient online payment mechanisms for people without credit cards — which includes many young Americans, and a majority of online shoppers in countries like Germany. This year alone it is projected to grow by more than 43%, to $180 billion.

• In Europe,many BNPL services allow you to receive your order and decide whether you want to keep it before you pay for it in full. That’s pivotal to reassuring e-commerce skeptics they won’t get ripped off.
• In the U.S., BNPL is generally pitched as a cashflow benefit — a way to pay for items over timeif you don’t have enough to pay in full today.

Driving the news: Apple’s iOS 16 iPhone operating system, coming this fall, includes an “Apple Pay Later” service whereby Apple will lend you the money to purchase pretty much anything, interest free, over four installments spanning six weeks.

• That includes perishable items like groceriesor gasoline — goods that have little if any lasting utility.

Context: Affirm, the biggest BNPL company in the U.S., lends for longer time periods against durable goods — most famously, Peloton bikes. Though it does sometimes charge interest, it also makes a lot of money directly from merchants who find that buyers are more likely to pull the trigger on a big purchase if they can spread the payments out.

The catch: If you buy a lot using BNPL, you can end up in real debt trouble. BNPL also lacks most of the consumer protections that come with credit cards.

• The industry remains largely unregulated, although the Consumer Financial Protection Bureau is looking intothe industry.
• One big weakness: It’s very hard for one lender to know how much money a consumer might already owe to other BNPL companies.

The bottom line: Spreading out a purchase price over time makes sense — once. If it’s something you do every month, however, the benefits rapidly evaporate.

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Πηγή: axios.com