BNPL: The Price of Impatience

• The business of BNPL

• Use with caution

• The pain is real

• Instant gratification 

• How to cultivate patience

• Consider the long term

The Buy Now Pay Later (BNPL) industry has grown tremendously in Australia over the past few years. With over 135,000 active merchants signed up to BNPL services¹, it’s evident that this isn’t just a passing fad. 

BNPL is essentially a short-term loan that allows you to buy what you want and delay payment. You typically pay the first instalment when you checkout and the rest are split over equal intervals, usually with no interest – but not always. 

Sounds pretty sweet, right? But how do these companies make money?

One word: fees. 

BNPL companies earn most of their revenue from fees charged to retailers. Merchants typically pay around 2-7%² of each sale for BNPL company’s services, for example.

According to ASIC, they may charge consumers:

• Late fees — around $5 to $15

• Monthly account-keeping fees — a fixed monthly fee, up to $10 a month

• Payment processing fees — some charge an extra fee of around $3 for each payment

• Establishment fees — for some there are no establishment fees, for others these fees can be up to $110.

Fees aside, BNPL services can also encourage users to overspend. 

It’s easy to get caught up in the thrill of being able to buy something that you want right now, without having to save up for it. But this can lead to impulsive purchases that you may not be able to afford in the long run, which can lead to debt and financial stress.

Plus, BNPL services often involve a credit check, which can affect your credit score. This can make it harder to get approved for loans or mortgages in the future.

So why is BNPL so popular? Let’s talk about the psychology behind it. 

Parting with money can be emotionally challenging for many people. It evokes discomfort and a sense of loss because of psychological factors like loss aversion and the value we place on money.

We often feel the pain of spending money more intensely than the pleasure of acquiring something in return. 

Additionally, we attach significance and effort to our hard-earned money, making it harder to let go. 

The pain of parting with money reflects our complex relationship with finances, intertwining emotions and the natural inclination to protect our resources.

That’s partially why BNPL is so appealing.

We want what we want and we want it now. 

That's why instant gratification is such a sweet, sweet buzz. It's like an adrenaline shot straight to the pleasure centre of our brains. But here's the thing - our desire for immediate satisfaction can cloud our judgement. 

We might end up making decisions that aren't in our best long-term interests. And that's where BNPL schemes come in. They tap into our impulsive tendencies and make it even easier for us to indulge in those spur-of-the-moment purchases. 

Who needs financial responsibility when you can have that new pair of shoes right now?

So how do you fight the allure of instant gratification?

The trick is to cultivate patience.

To do this, start by identifying your triggers. Triggers are the things that push you to make impulsive decisions. It could be social media, your environment, peer pressure or advertisements. Once you identify your triggers, you can try to avoid them or at least reduce their impact on your life.

Consider why you want an item and if it will truly improve your life in a meaningful way. For example, a cheap pair of shoes may seem like a great bargain at first, but if they fall apart after only a few months, you will need to buy another new pair. A higher quality pair of shoes may cost more upfront, but will likely last longer, saving you money in the long run. 

Take the time to evaluate the lifespan of an item and consider the costs associated with replacing it before making a purchase.

Cultivating patience takes practice, but it's a skill worth mastering. 

Before making any purchase, try to consider the long-term consequences. 

Will buying this get you closer or further away from your goals?

BNPL apps may provide short-term benefits, but they can lead to long-term debt and financial problems.

Instead, consider saving up for what you want or finding more affordable alternatives.

^{1 https://afia.asn.au/files/galleries/AFIA_BNPL_Research_Report.pdf} 

^{2 https://assets.equifax.com/marketing/US/assets/bnpl-sustaining-growth-and-building-profitability.pdf}