Buy now, Pay Later Explained

By the end of 2022, Buy Now, Pay later (BNPL) payments are predicted to hit US$ 457.3 million in South Africa. By 2023, globally, this figure is predicted to be US$ 166 billion. So what’s caused this exponential growth, and why are consumers increasingly using it as an option for credit?

What is Buy Now, Pay Later?

As the name suggests, Buy Now, Pay Later (BNPL) is a way for consumers to buy and acquire a product now, and have a payment plan of equal installments until the product is paid up. Unlike a traditional lay-bye, when a consumer chooses a BNPL payment method, they immediately get the product. 

When it comes to traditional models of credit (like a credit card, for example) the differentiating factor, and often, the big appeal is that a BNPL payment option offers consumers interest free installments.

This means that consumers pay what they would’ve if they had bought the item in cash, just over a longer period. A consumer’s first installment—usually 25% of the total amount—is due at the time of purchase, with equal installments due over a few weeks or months, depending on the BNPL provider.  

So, in practice, what does this look like?

Let’s say you’re shopping on Takealot and you’re happy with your order, so you proceed to checkout. When selecting how you will pay, one of the payment options is a BNPL provider. In the case of Takealot, it is Payflex.

Once you’ve selected the Payflex option, below is an image of what you may see:

If Buy Now, Pay Later providers don’t charge interest, how do they make their money?

BNPL providers charge the merchants (like Takealot in the previous example) a fee to make use of their services. In some instances, if consumers do not make their payment on time, they may be charged a penalty fee. 

Is Buy Now, Pay Later really good for the consumer?

In short, yes and no. While this is a great option for people who don’t have good credit scores, and it offers a chance at financial inclusivity, it can encourage impulse buying and lead to consumers accumulating debt they just cannot afford to repay. 

Here’s a list of the pros and cons of Buy Now, Pay Later

The 3 main BNPL players in South Africa and how they work 

1. Payflex 
   
   Offers consumers the option of buying in-store at their partner retailers, and online purchases.  For online purchases, you do not need to download the app. However, if you want to make use of their services in-store, you do. 
   
   You pay over 6 weeks in 4 interest-free installments. 
2. PayJustNow
   
   Offers consumers the option of buying in-store at their partner retailers, and online purchases. For online purchases, you are required to register for an account before making a purchase. 
   
   You pay 3 interest-free installments. 
3. MoreTyme
   
   Offers consumers the option of buying in-store at their partner retailers, and online purchases. For online purchases, you are required to register for an account before making a purchase. This process is usually very quick. 
   
   You pay 3 interest-free installments. 

Are you really saving or are you just setting yourself up for a debt spiral?

Remember that even though you are spreading the cost and paying later, you still have to pay. While it is an easy way to get your next purchase, and the year has been so long and you deserve to be treated, make sure that you treating yourself lasts longer than that purchase. 

If you are not using a BNPL method to treat yourself, and you’re instead using it to buy essential goods like groceries, there’s a good chance that you could be over-indebted. 

3 Tips for using the Buy Now, Pay later method wisely:

1. If you do want to opt for this payment method, try and stick to one BNPL provider. If you don’t, you run the risk of accumulating debts from several providers and chances are you won’t be able to keep up with all of them. 
2. Although BNPL providers will likely give you a credit limit, you should create one for yourself based on what you can really afford. It’s important here to be very honest with yourself. Again, it’s tough, but remember that the bills don’t lie. 
3. Before choosing a BNPL provider, make sure you are fully informed. Are there any penalties involved for late payments? Is it really a free service? Are there hidden costs for having an account with them? Check all the Ts & Cs.