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Many of us in the financial services industry have witnessed the rise of the “buy now, pay later” (BNPL) financing concept. If you bought anything online in the last few years, you may have seen a BNPL option pop up on your screen, offering various payment structures to divide your purchase into more digestible installments over a specific period of time. 

Unfortunately, this is the moment when those same “convenient” payments can come at too heavy a price. 

Buy now, pay later a mirage of financial convenience

In a revealing BuzzFeed article in February of 2023, shoppers told their personal experiences using the BNPL model, and the reality that came after. 

One example, offered by Sam, age 32, saw her orders broken down into smaller payments, making her feel as though she wasn’t spending that much money at all. “It’s so easy to get caught up in those payment forms. You see payments of $20 and think you can do that. Next thing you know, you owe $600 from various stores because the payments seem easy at the time.” 

Another BNPL online user, @blackbooksllc, realized all-too late that the advantages of BNPL can go bad, and quickly. “When all those ‘pay later’ purchases become ‘pay now,’ you definitely start to feel the regret. It adds up.”

Indeed, humanity’s natural appetite to overextend applies well to BNPL companies’ ability to make gobs of money off consumers’ financial vulnerability. “I’ve used just about every one of the [BNPL] apps,” says Deena, 36. “Worst mistake, it was like a drug. I was buying things I’d never normally splurge on. I could have had tens of thousands of dollars saved, but in the last two years, I’ve spent close to $20,000 using these apps. And once I couldn’t keep up with the payments on one app, I used the next one, and it all just snowballed from there. I truly wish I had never used any of these.”

Numbers say the financially vulnerable lean towards BNPL

It’s not really a surprise, is it? Recent research by the Federal Reserve Bank of New York found financially fragile Americans are nearly 60 percent more likely to use BNPL five or more times a year compared to just 23 percent of those who are financially stable. Additionally, nearly 30 percent of the financially fragile took out 10 or more BNPL transactions each year. Those numbers scream out the lack of financial stability and positive finance habits that serve the best interests of the very people who need them most. These are the same people to which credit unions need to reach out, embrace, and bring into the nurturing, financially-inclusive environment the member-owner cooperative experience provides. 

Another startling reality is the age demographic BNPL plans are attracting along with the underserved and financially vulnerable. According to the Financial Health Network in 2022, the growing BNPL market showed increased growth among younger generations, specifically Millennials and Gen Z. Their survey found that 20 percent of those respondents reported they had used a BNPL service in the last 12 months. 

For an age group central to the present and future growth of the credit union movement, cooperatives need to recognize both the threat BNPL plans represent and the existing opportunities offered by credit union-friendly CUSOs like QCash’s small-dollar lending platform that can help members set fundamentally-sound financial habits. 

Photo: Blake Wisz | Unsplash

Ultimately, while some shoppers today have the capacity to pay back their loans on time, BNPL payment plans remain an unhealthy quick fix; a band-aid that may deliver short-term consumer gratification but fails to work with the buying customer to deliver the full amount in the time allotted. They’re financially unstable sources of funds, consequence-loaded, and can negatively affect that shopper’s financial health and credit score for months or even years if they are, as the Federal Reserve of New York found, used as often as 10 times annually.

CUSO platforms offering small-dollar loans represent the perfect antidote to those underserved, financially-vulnerable, and younger generations who are, knowingly or unknowingly, placing their financial health at risk with rickety BNPL finance plans. Instead of trapping shoppers into rigid and inflexible agreements upon their purchase of goods, small-dollar loans from their credit union allow members term flexibility, lower rates, and the ability to build credit for the long-term.

Adding to the indispensable small-dollar service is the chance to give members the opportunity to access financially healthy loans from their mobile devices, wherever and whenever they find themselves. If a member needs funds for a purchase, using the QCash platform they can easily go to their credit union app, apply for funds, and have those funds deposited in their member account in less than a minute.

Is your credit union ready to help its members reconsider the quick fix mentality of “buy now, play later,” while guiding them towards a fundamentally superior product that encourages financial health and credit-building? If so, check out the benefits of the QCash platform firsthand by heading to our Request a Demo page or contacting a service representative.