The Buy Now, Pay Later (BNPL) boom has taken center stage, but despite their convenience, this might not be so great for consumers. A report by the Consumer Financial Protection Bureau (CFPB) from September 2022 revealed a staggering 1,092 percent increase in the popularity of BNPL services like Afterpay, Klarna, and Affirm since 2019. While these services offer a flexible way to split payments into smaller, interest-free installments, they also raise a host of concerns related to consumer risks.
BNPL products have gained significant traction among Millennials and Gen Z, offering them an alternative to traditional credit cards. However, this shift has prompted worries about a lack of financial literacy among younger generations. The CFPB report highlighted several risks associated with BNPL services, including late fees, data privacy issues, disputes, and a dearth of standardized disclosures.
During an episode of “The Macro Show“ Wall Street insider Keith McCullough, the the CEO of Hedgeye Risk Management, compares the current U.S. economic environment and the BNPL craze to the Great Financial Crisis.
“I don’t know if I’ve said this enough times: This is not 2008—not even remotely close. 2008 was a story about Wall Street leverage, bad behavior, frauds. This one is far more dangerous,” he said of the BNPL movement.
He added, “This one is about Main Street. It’s about 50 percent, going on 60 percent and 70 percent of Americans not having any money left and needing government handouts increasingly to offset that pressure. Needing more credit cards, more leverage.”
He went on to explain, “If you’re paying 22 percent on a credit card, think about where you must be financially. Buy Now, Pay Later (BNPL)? This is far more dangerous for far more people. This is a Main Street recession that we’re just entering. I don’t know how that’s going to end. I just know that Wall Street all agreeing to agree that this is going to be some soft and beautiful landing because of 10 stocks is dead wrong.”
One of the primary concerns is that BNPL services often downplay the fact that users are still taking on debt. These services don’t market themselves as installment plans, which can lead consumers to underestimate the financial commitment they are making. With Millennials having the highest usage rate of BNPL at 32.6 percent, The Los Angeles Loyolan newspaper of Loyola Marymount University reported.
Photo by Kindel Media: https://www.pexels.com/photo/a-woman-shopping-online-using-a-laptop-7007176/