There are not a few consumers like Garrett in America. The "buy first and pay later" (BNPL) service she uses is somewhat similar to the "flower shop" in China. Consumers only need to pay a small sum of money when buying goods (some payment service providers even allow users not to pay the down payment), and the rest will be settled in four installments in the next few weeks or months.
Although this kind of credit consumption began to appear in Europe and America as early as 20 19, it was really accepted by mainstream consumers after the spring of 2020.
Although analysts have different estimates on the scale of the industry, the only thing that can be achieved at present is that the "buy first and pay later" service has achieved explosive growth in the past year. Oliver Wyman, a management consulting firm, estimates that in 2020, BNPL facilitated $20 billion to $25 billion in transactions in the United States.
Reuters's survey of 1038 American adult consumers also found that as many as 42% of the respondents had used the "pay before you buy" service.
However, similar to products such as credit cards and installment payment, "buy first and pay later" is also associated with "bad debt rate" and "personal debt crisis". For example, Garrett mentioned above was fined $40 by the service provider for not paying in the following months, and his credit score dropped by 65,438+00 points to 650 points, and his rating was "average".
On the one hand, it is to stimulate commercial sales and meet consumer demand, on the other hand, it is the emerging debt problem. Is the increasingly popular "buy first and pay later" business a shot in the arm or a chronic poison to the sluggish European and American economies?
The recently popular "buy first and pay later" is different from the long-term credit card consumption and installment payment in Europe and America.
Compared with credit cards, it is more flexible, and consumers can choose to pay within a few weeks or months without having to pay back at a fixed time every month. In addition, users can pay directly to pick up the goods in this way, instead of receiving the products after paying the last payment, as in traditional installment payment.
In this sense, it is more like "Flower Bai" produced by China Alipay. The difference is that "flower garden" requires users to pay monthly, and the payment period of "buy first and pay later" is not limited to months. The product form and repayment time provided by each family are different.
For example, the scheme given by the Swedish bank Klarna and two other companies, Quadpay and Sezzle, will be settled in four times within six weeks; Afterpay is the most stringent, and users need to pay in four installments within two weeks. In contrast, the repayment period given by confirm is much longer, and users can choose to complete the repayment in 6~ 18 months.
Similar to the flower garden, the "buy first and pay later" service provider will also call the total amount of the goods to the merchant after the consumer places an order, and deduct some money as his service fee. Then wait for the user to call the service provider to pay as agreed.
The difference between the two is that Bai Hua's profit model mainly depends on the loan interest of consumers, while the "buy first and pay later" service provider is mainly "bonus hunter" from merchants.
For example, as long as Klarna's cooperative merchants sell a product by "buying first and paying later", they have to pay the former a service fee of 5.99% of the price of the product and a fixed handling fee of 30 cents. Generally speaking, the service fee charged by American Visa card to merchants is only about 3% of the amount of goods.
In contrast, service providers generally charge consumers less interest than credit cards. Most service providers don't even charge users interest on loans at all.
Obviously, this kind of differential treatment is more beneficial to consumers. But this is understandable. After all, it is consumers who spend money on things. If the cost of installment payment is higher than that of credit card, they certainly won't choose this payment method.
Since the fees are so high, why are merchants willing to open the "buy first and pay later" service?
It's simple, for sales.
Under the epidemic, the losses of American businesses are immeasurable. The latest data released by the United States in the fourth quarter of 2020 shows that the national disposable income of the United States has decreased by 9.5% at an annual rate, while the personal consumption expenditure is only 2.5% at an annual rate. These data show that most ordinary Americans are tightening monetary policy; The result of tightening monetary policy at the consumer end is naturally the decline of consumption.
For merchants, products are piled up in shops. As long as things can be sold and the payment can be obtained in time, even if a little handling fee is deducted, it is already very satisfactory.
This situation is particularly obvious in e-commerce sales.
According to the research results of PayBright team, when merchants provide "buy first and pay later" service, the number of discarded goods in buyers' "shopping carts" is significantly reduced; Scalefast, an e-commerce platform service organization, reported that "buy first and pay later" increased the average order value of merchants by 30%.
On the other hand, from the consumer's point of view, the "buy first and pay later" mechanism not only allows them to obtain goods at lower prices and in a more flexible way, but also objectively helps buyers reduce the purchase cost. They can try it for a period of time after receiving the goods, and continue to pay according to the contract if they like; If you don't like it, you can return it. In this way, the buyer's purchase pressure is also reduced.
Because of this, the "buy first and pay later" service providers generally say that the result of this "new consumption model" is "win-win":
On the one hand, it can help businesses increase sales, on the other hand, it can help consumers buy what they need.
"Buy first and pay later" can buy many goods, from cheap clothes to daily home, from fitness equipment to the latest fashion brands. As long as the relevant service providers sign contracts with brands, people can consume in this way.
For example, Klarna H& has established cooperative relations with thousands of enterprises in 20 countries, including Uniqlo, H & ampm and Anthropology. When users buy goods in these offline stores, they can directly use Klarna's application (similar to Alipay or WeChat payment) to complete the payment.
In an interview with Reuters, David Sykes, the head of Klarna's US business, said that the number of users of the company's "buy first and pay later" application has greatly increased in the past year. "The installment amount of most users is 100~200 USD."
According to him, the credit consumption service provided by Klarna is a small, short-term and interest-free loan. The company will also provide customers with the opportunity to delay payment without paying overdue fines.
When it comes to late payment fees, the standards of late payment fees of Klana's American state branches are different. The current maximum is $265,438 +0. In the future, the company will issue a policy to make it clear that the upper limit of late payment fee will not exceed 25% of the price of purchased products.
In addition to Klarna, Afterpay, confirm, Quadpay and Sezzle are also outstanding in "buy first and pay later", and they all belong to emerging financial technology startups.
More than half of Australia-based Afterpay's customers in the United States are between the ages of 25 and 40. The company said that in the fiscal year ending June 30, 2020, its active users in the United States more than doubled compared with the same period last year, reaching 6.5 million; Sales from July to September have more than tripled year-on-year.
San Francisco's confirmation is also a "gratifying growth", with revenue increasing by 93% to reach $509.5 million in the fiscal year ending in June. The company allows users to complete the payment within 6 weeks to 4 years, and the interest rate is 0~30%.
Unlike many companies, confirm does not charge late fees. Default in repayment mainly affects the user's credit score. Confirm said that the main reason for not charging late fees is the care for users.
Seeing the rapid development of emerging enterprises, PayPal, an "old" payment application, is not lonely. Since last June 165438+ 10, the company has widely launched the "Pay in 4" service throughout the United States, where customers can make four interest-free payments and buy goods ranging from 30 to 600 dollars.
Greg Lisiewski, global vice president of PayPal, also said that they will not report users' default to credit institutions, nor will they be told the specific amount of late payment fees.
Organizations that are more traditional than PayPal must have seen the changes in the market. Companies such as Citibank and American Express have recently launched similar services. In this regard, Nityanand Sharma, co-founder and CEO of Simpl, commented that these actions show that e-commerce is rapidly shifting from the instant payment era to the "delayed payment" model:
Although from the data point of view, "buy first and pay later" can indeed bring many benefits, but the hidden worries of this model can not be ignored. The first issue is supervision.
In the United States, the above service providers have neither a banking license nor the same industry standards. Stuart Condie, a senior observer of the Wall Street Journal, pointed out that Afterpay "bypasses the definition of loans in some American laws and therefore does not accept the same supervision as banking institutions."
Alice Tapper, the founder of Go Fund Yourself, also said that since the government has not restricted the promotion mode of these companies, the latter can have higher freedom in promoting products; They also don't have to add tips such as "borrowing may face debt repayment pressure, please be cautious when using it" on the user checkout page. Therefore, "even if companies have problems with their services, they are more likely to escape punishment than credit card issuers."
The problems of product promotion and advertising are still trivial. The bigger potential crisis lies in the credit review mechanism.
Credit card issuers require users to provide a lot of information and pass strict credit checks. In contrast, the "buy first and pay later" supplier only needs the user to provide his name, address, telephone number, date of birth and e-mail address, and then decides whether to approve the user's application according to the algorithm of the system. But this is not a complete credit check. In fact, up to now, no major product service provider has disclosed the specific standards considered by their algorithms.
Loose credit evaluation means that this service is more accessible to people whose purchasing power has not been developed. Considering that nearly half of the 20-year-olds in the United States do not have credit cards, the target group of "buy first and pay later" service is self-evident.
Ella Rheingold, executive director of the American Consumer Protection Association, pointedly pointed out that "the BNPL Agreement is actually encouraging young people to buy things they can't afford. There is a huge debt risk. "
Rachel King of Fortune magazine also said, "If the buyer fails to repay the loan on time, fines such as late payment fees will increase rapidly, and consumers may fall into greater debt pressure in a short time."
Tamika Rivera, a 35-year-old insurance agent in Massachusetts, once didn't have enough cash to buy a $43 sweater, so she chose the "buy first and pay later" service. However, because she failed to pay back the money in time, she finally had to pay a late fee of $35-almost the same as the price of the sweater.
In addition to debt pressure, the reduction of credit rating will also affect consumers' future credit consumption. In the United States, a low credit score will make it more difficult for users to borrow money and apply for credit cards in the future. In extreme cases, some people may face a housing crisis. Because landlords usually check tenants' credit scores before serviced apartments.
Although some service providers, such as Afterpay and Klarna, explicitly promise not to report users' credit status to the government, it is not good for users. First of all, this means that the performance of the contract will not improve the credit score; On the other hand, breach of contract will not help them get rid of fines.
Ted Rossman, an industry analyst who has worked in CreditCards.com and Bankrate.com, pointed out that these financial service providers will put pressure on defaulters by cooperating with collection companies. And as we all know, collection companies always have ways for people who don't pay their debts.
Faced with the above questions, most service providers said that they were just alarmist.
Silvija Martincevic, chief commercial officer of Confirm, declared, "We only approve borrowers who can repay loans as enterprise users. Our audit method is based on the calculation results of machine learning. It is trustworthy. "
Australia's Afterpay said that 95% of its global transactions have been repaid in time, and the late payment fee accounts for less than 14% of the company's total revenue.
However, according to a study by credit Karma, among American consumers who use the "buy first and pay later" strategy, nearly 40% have not paid more than once, and 72% of them have lost their credit score.
Gannesh Bharadhwaj, general manager of credit Karma's credit card business, bluntly said that the proportion of consumers who do not pay is very high, not as low as you think. "
Based on the current regulatory loopholes and potential risks, regulators in Britain and Australia are reviewing or tightening the rules of the industry. Some regulators said that BNPL service providers classified as financial technology companies should be subject to strict supervision like banks.
The United States may also take relevant countermeasures. Some experts predict that the industry will be subject to more scrutiny during Biden's administration. Mark Palmer, a financial analyst at BTIG Research, believes that the Consumer Financial Protection Bureau will play a more important role in the future.
The financial market in the United States has always adhered to the principle of "buyer's caution", that is, lenders are responsible for their own borrowing behavior. However, Sarah Newcomb, director of behavioral science at Morningstar, a financial research institution, pointed out that this principle is facing unprecedented challenges, because "when predatory financial services such as' buy first and pay later' appear, most of them simply cannot resist the impulse and desire to consume."
Indeed, the separation of purchase behavior and consumption behavior is indeed easier to stimulate users' desire for consumption. As Amanda Moore, a contributing writer for Atlantic Monthly, said: