Buy Now, Pay Later: A Simple Guide

Good day to you!

I've just ended an academic term a few days back and all this while have been itching to write about this topic. So here it is, the topic of Buy Now, Pay Later (BNPL). As you may know, buying now and paying later is not a new concept. Far from it. In fact, the most important things in our lives follow this grain of payment. Your mortgage, your car payments, personal loans, etc. All these are things are rather familiar to us and that may leave you may be wondering, why talk about it now?

Setting The Context

It would be important to firstly, get you on the same wavelength of what I'm writing, which is BNPL, but in what sense? There are huge, bank-related transactions such as buying your property, getting a car or even getting a huge personal loan to start a business. All of which require a rather large quantum and as mentioned earlier, is still a form of BNPL that we definitely have to live with. I would love to be able to fully cash my BTO but, like 90% of the population around my age, don't have the fortune to do so.

However, I speak not of huge quantum and long repayment terms, I speak of the small, microtransactions of BNPL, which are things like buying a computer screen, a fridge or even a gaming chair (which I recently bought using BNPL!). These are the things we buy that we usually don't pay in full but rather pay over a short period of time (3-6 months). This is what I'll speak of for BNPL.

Reimagining BNPL

In recent months, I've been getting YouTube ads (I don't have adblocker) of Atome, a BNPL company, with their Korean boyband showing off how they've bought numerous things using Atome's platform. It's interesting that BNPL has become so prevalent recently with numerous companies jumping on the bandwagon to provide a BNPL service.

My understanding of old-school BNPL provided largely by banks was that you have to use your credit card to pay at the point-of-transaction (POS), be it physical or via e-commerce, and you'd have to call in to your bank to indicate that you want to pay in instalments or do so via iBanking. However, knowing banks and the bureaucracy of their business, it could take up more than half an hour to get it approved, and the approval process isn't instantaneous.

This is where companies like BNPL come in to streamline the process: On the interwebs, you select an item you want to buy, go to checkout and within the checkout itself, you get an option to pay via their partnered BNPL merchant. Alternatively, at a physical POS, you can scan the payment QR code and be offered a pay later option instantaneously within that same payment page of the app itself. It's that simple!

The Big Question

That being said, if there's one thing I've always wanted to know, is: How do these companies make money? Upon further reading, I've come to know that BNPL companies function much like network/affiliate marketers where they bring traffic to merchants. An example of this would be Grab, using their PayLater platform to advertise for companies like Secretlab and Royale, to name a few. As such, companies like these pay a sort of referral fee to these BNPL companies for the traffic they bring in, which is around 2-8%.

Chances are this is usually the case as people are more inclined to make a big-ticket purchase (i.e. A gaming chair) when their payments are split and they don't see $600 flying out their bank account in 1 day. In which case, I was not so inclined to do and opted for a BNPL option for my gaming chair.

There are other ways that these BNPL companies make money, which is to charge late repayment fees. In fact, for many of these companies the late payment fees make up a substantial portion of their revenue and in essence, are contingent on you paying your dues late.

What Does This Have To Do With Me?

It has everything to do with you, especially if you're an online shopper. From lower late repayment fees, ease of access and most importantly, affordability. As a consumer, we'd look to having a more seamless experience when purchasing things that we like. But there are some things you need to look out for.

Two things: Firstly, there are multiple BNPL platforms in Singapore. They are but are not limited to, Grab PayLater, FavePay Later, Atome and hoolah. They all have different ways of going about customer management and the vendors they deal with, so would be good to think about which provider is best for you and your purchase.

Secondly, there needs to be a sense of control when using BNPL portals because numerous small purchases eventually lead up to a big purchase every month. To me, this isn't a problem because I tend to live rather frugally but if you're one who likes to browse for big-ticket items regularly, it would be prudent to keep your shopping urges in check and to also keep track of what you're currently paying for and if you have the liquidity to afford it. I sincerely wouldn't want you to get in a situation where you've bought so many BNPL items and are struggling to pay them off because you didn't plan your purchases!

Conclusion

The advent of new methods of buying now and paying later have indeed provided a lot more diversity in choice for the everyday consumer, but it has brought along its own challenges. BNPL in its latest rendition is convenient, but this convenience brings an easy road to misery if you don't manage these purchases in a prudent fashion.