29/07/2022
Buy Now, Pay Later (BNPL) services have seen unprecedented growth among gen Z and millennials over the previous few years. This sharp increase is directly correlated with the use of e-commerce websites to which we are loyal (e.g. Asos, Amazon and Etsy) and a demand for various payment methods to fulfil our daily needs. If you think you haven’t used BNPL services, chances are that you have. New research from the Citizens Advice Bureau reported that 45% of 18 to 34-year-olds in the UK had used BNPL services in the last 12 months. Disconcertingly, the report indicates that over half of these people did so without realising.
Let me give you a brief intro if you’re still wondering what BNPL products are. They provide a short-term debt option and, similar to other Fintech innovations, are challenging to regulate due to the obscure nature of these services. Although they aim to encourage ‘responsible spending’ through cheaper options than credit cards, research has concluded the more financially literate you are, the lesser the appeal to use BNPL services. Apologies for all the finance talk, but in essence, the more knowledge you have regarding your financial capabilities, the less likely you are to use BNPL services. Mind-boggling? Not really.
Researchers have determined a few justifications people have for using these products; for instance, 45% of them use these to make purchases that aren’t feasible to one’s budget. Additionally, 36% of users use BNPL to avoid credit card interests, 25% borrow without a credit check, 20% to guard personal data and 19% to avoid using credit cards.
Why is being informed important?
Impact on credit scores
A study revealed that increased consumer expenditure could facilitate impulsive purchase decisions and lead to more considerable demand for luxury goods. Thus, it is of utmost importance to be cautious with BNPL plans. Many opinions are circulating about BNPL plans and their potential to either harm or benefit their consumer’s credit scores. For instance, if you cannot pay back payments, your credit scores may be adversely influenced, similar to late credit card payments. Thought you could get away from the negative repercussions of traditional payment methods by using BNPL? You guessed wrong. On the flip side of things, consumers who can keep up with payments could witness their credit scores improve resulting from that positive financial behaviour.
Ethan Dornhelm, Vice President of Scores and Predictive Analytics at (FICO), a company focused on credit scoring services, stated that younger consumers with a limited credit history might gain from BNPL data getting included in credit reports.
"Those with very low scores or thin credit files are more likely to benefit from the addition of positive BNPL information. If the consumer doesn't have any existing credit accounts reported in their credit file at all, then the BNPL loan could enable them to begin building a credit history and ultimately receive a FICO® Score."
However, it is worth noting that BNPL lenders fail to report repayment to credit reporting firms, demonstrating that these services do not stand to benefit their user’s credit scores. Nonetheless, BNPL lenders report to credit bureaus, so late payments may adversely impact one’s credit history.
Impact on consumer debt
The Centre for Financial Capability stressed that 25% of the users had failed to pay their debt on time, and the majority were aged 18 to 34. Further, the unregulated features of the industry may lead consumers into damaging and unaffordable debt. Let’s dive into the details of these services, shall we?
Barclays Partner Finance indicates that Gen Z users are “disproportionately impacted by the pitfalls associated with unregulated buy now, pay later (BNPL) products, with many using multiple unregulated BNPL providers to take on more debt than they can afford to repay.”
Take a chance today for a better tomorrow
So now that I have your attention, I’d like to introduce you to our firm, Intend, a FinTech firm that measures, tracks, and manages the personal finances of mental health of Generation Z students. As a firm, we aim to address the detrimental impacts of these Buy Now, Pay Later (BNPL) services that are growing at an unprecedented rate.
We are the first of our kind to address a pertinent issue often neglected and their association with one another: poor mental health stemming from monetary problems. Research has shown that in England alone, over 1.5 million individuals are subjected to large sums of debt and mental health troubles. Our firm's stance on this issue is undoubtedly clear. At Intend, we believe that we will become the most trusted mental health identification platform used to predict and manage mental health problems in all cases of severity. We use behavioural finance to identify, manage and prevent poor mental health and financial distress by reducing stressors for people and their families, irrespective of their circumstances.
To give you an insider’s POV, here are quotes from a few interns at our firm:
“I think so many of us Gen Zers are dissatisfied with the way we spend and feel, but we just don’t know where to start. Intend genuinely understands the struggle, they aren’t interested in shaming us, and it feels like there’s finally support available, regardless of who or where you are!”
Rachel, Intern
“It is a journey to help peeps for their well-being, and I would be proud of that.”
Bruce, Intern
“It’s been incredibly engaging to work with such a motivated company whose values strive to help educate other gen z’s just like me.”
Tanisha, Intern
So now that you’ve heard what our firm stands to strive for, what are you doing? Download. Intend. Today.
