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Q&A: How ‘Buy Now Pay Later’ Affects Financial Health

Expert Quotes | UW News blog

November 16, 2022

Two cartoon hands reaching out from separate laptop screens with one holding a credit card and the other with a shopping bag

Buy now, pay later is expected to reach $1 trillion worldwide by 2025, but little is known about its effects.Pixa Bay

“Buy now pay later” platforms, such as Afterpay and Affirm, offer consumers almost instant access to credit for retail purchases without a hard credit check. While BNPL spending is expected to reach $1 trillion globally by 2025, little is known about its effects.

BNPL, which usually appears as an option during checkout on a merchant’s website, usually requires an upfront payment followed by three fortnightly payments. Although there are no fees if payments are made on time, missed payments may result in late fees from the BNPL provider and overdraft fees from the customer’s bank.

Total BNPL loans issued by the largest US providers tripled in a single year, from $8.3 billion in 2020 to $24.2 billion in 2021. BNPL could benefit consumers without credit or replace high-rate credit cards or payday loans, but it could also allow customers to overspend and face the financial consequences.

Previous surveys show that 70% of users report spending more with BNPL than they would otherwise, 42% missed payments and 25% joined BNPL to avoid a hard inquiry, which could affect a person’s credit score and can stay up to a credit report. up to two years. Soft checks do not affect credit scores.

Ed deHaan, associate professor of accounting at the University of Washington Foster School of Business, studied the impact of BNPL on financial health. His research found that compared to non-users, BNPL users experienced rapid increases in bank overdraft charges and credit card interests and fees.

Ahead of the biggest retail spending season of the year, UW News spoke with deHaan to learn more about BNPL.

What are the risks associated with BNPL?

Ed deHaan: Financial technology companies are doing amazing things and coming up with all kinds of products that can improve our lives and make us happier and better off. But there are also some risks involved, especially when profitable companies start in everyday household economy spaces.

Here we have an innovation, Buy Now Pay Later, which due to some quirks of the regulatory system does not fall under existing regulations that we have for products like credit cards. That’s why it’s kind of free rein. This is not a product that the financial regulatory system expected. What we’re seeing is that, in the current version, many consumers are adopting BNPL who don’t really have the financial skills or access to resources to understand what they’re using, and they’re getting into financial trouble.

How can research contribute to the future of BNPL as it continues to grow in popularity?

ED: It is no surprise that some people were concerned about the effect of BNPL on users for various reasons. We’ve seen time and time again that when we start giving consumers easy credit, a lot of people use it neatly. But there are a substantial number of users who end up in financial trouble. We have seen this for bonds. We’ve seen this for credit cards. I recently taught my students a case about Sears credit cards in the 1990s and how the company got into a lot of trouble through predatory lending and then unethical debt collection practices. We have plenty of evidence that this happens repeatedly. BNPL is just another version of easy credit, and we suspect that some people are being harmed by this.

Regulators are clearly concerned about that, because this product just happens to fall through the cracks of existing regulation. I think if anyone expected BNPL it would have been regulated already. The current debate in the United States and around the world by regulators is not so much whether anything should be done to regulate BNPL, but rather how far those regulations should go.

Our analyzes indicate a rather sharp, rather sudden decline in leading indicators of financial health for people adopting BNPL. We can’t say anything in detail about whether these people are better or worse off on the Internet. It’s very difficult. For example, if they use this credit to pay for baby formula, they may be better off. But certainly, BNPL seems to have all the leading indicators of a financial product that can get people into trouble.


To reach deHaan for more information, contact Lauren Kirschman at

Marker: Ed deHaan • Foster School of Business

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