Black Friday 2021: 3 Risks of Buy Now, Pay Later Apps this holiday season

By Edlyn Cardoza

Black Friday is on the day after the celebration of Thanksgiving in the US. Retailers usually offer steep discounts on this day, making it the busiest shopping day of the year as it kicks off the holiday season. 

With the digital transformation taking over almost every platform, BNPL has been a massive hit across the US. Many retailers have partnered with BNPL apps, making it easier for people to make purchases on their websites. Buy Now, Pay Later is short-term financing that allows consumers to make purchases and pay for them in the future, often interest-free. Also considered a point-of-sale instalment loan, BNPL services are becoming a popular payment option, especially when shopping online. Using BNPL financing, of course, can be convenient for consumers. But there are a few potential downsides for the same. 

Patricia Gibson MP said via Twitter, “I called for greater @GOVUK regulation of #BuyNowPayLater #BNPL deals as #BlackFriday & festive season approach. These unregulated areas of the credit market by @TheFCA leave consumers exposed to financial harm & the misery of unsustainable #debt.”

As Black Friday is upon us, the 2021 holiday shopping season has officially kicked off, and BNPL services are having a comeback in popularity. Prime retailers like Walmart, Target, and Amazon have announced new partnerships with BNPL startups like Affrim, Sezzle, Splitit, etc. While these plans offer more flexibility to consumers who might hesitate at paying the total price upfront, we look at how BNPL can easily lead to several risks, especially over the holidays. 

• Overspending 

BNPL is an appealing option to many, as it provides the option of paying the total amount in instalments over weeks until it is paid in full. These services don’t usually require credit inquiry, and few BNPL services don’t charge fees or interest. Apart from this, opting for BNPL does come at a price. Account of missing scheduled payments can result in late fees of up to 25% of the past-due amount, depending on the app you use. Additionally, if you don’t repay the balance amount in due time, you can be reported to the credit bureaus as delinquent. In the future, this can make it difficult for you to lock in good terms on financial products and can lead up to damaging your credit score. 

• The emergence of fraudulent activities

In the contest to help customers efficiently during the holiday season, BNPL providers and online retailers should ensure safety and not overlook the potential risks associated with this emerging payment method. A critical risk lies in fraudsters ability to use stolen credentials of trusted customers to open new accounts. Since BNPL providers usually carry out soft identity or credit checks, they are unlikely to point out potential fraud elements, such as the mobile number or email address not being linked to the named applicant. 

• Young consumers fall prey to debt

According to a survey by Credit Karma, more than 40% of American shoppers have used BNPL services, with the highest usage among Gen Z and younger millennials. The survey stated, “25% of millennials have missed one payment, while 30% of Gen Z respondents have missed two.” Young consumers in their early 20s start off by paying off bills and credit cards in their name. Credit cards are reported to credit agencies, and paying them on time leads to good credit for the consumer. The credit score they receive becomes essential for consumers when they apply for mortgages or loans. If the consumer is alert and conscious about their spending, BNPL can be a useful tool. But for the young, the rush of shopping, especially during the holiday season, can steer them towards the slippery slope of overspending, paying late or relying too much on this method, which could land them in trouble. 

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