BNPL: Fueling FOMO to Create a Debt Spiral!

The 1987 book - Our Common Future, also called Brundtland Report, talks about Intergenerational Equity which is defined as “States shall conserve and use the environment and natural resources for the benefit of present and future generations. It is an indispensable prerequisite for sustainable development. Our failure to do so will not be forgiven by future generations.”

Similarly, in the usage of Financial Services, we are rampantly promoting the use of instant credit products in the name of innovation and convenience, which is doing more harm than good for our younger generation. I do agree that such products can be very helpful (if used judiciously), but very few service providers actually care whether the consumers are using them wisely or impulsively. I myself have designed many products that help people and businesses get easy access to credit which helps them to build and grow their businesses but, only if it is understood and used wisely.

Buy Now Pay Later (BNPL) is one such offering that is getting very popular these days. It makes it extremely easy for customers to buy something when they don’t have the money to pay for the product in full. It is so easy to use this service that often consumers ignore the fine print while availing of this facility. ?Usually, such offerings are marketed as zero-cost and zero-interest products but it is not really the case. Transparency is a major issue with such products.

These products thrive on well funded mass marketing. Advertisements often fuel the Fear Of Missing Out ?(FOMO) and encourage customers to consume more as You Live Only Once (YOLO). Sometimes, they encourage customers to go beyond their paying capacity by facilitating unrealistic spending habits, just to fit in!

Just like credit cards, such products are extremely good and convenient for disciplined people (I do use them on a regular basis), who never miss any instalment and don’t pay any late fees. Inability to pay on time is a sure-shot way to negatively impact the credit history, which, in turn, can create problems when the customer is looking for more serious loans for growing their business or buying a house. Companies don’t design their business models focusing on the few responsible people (who never delay their payments). They benefit when unaware customers delay their payments and pay high-interest rates on their loans.

Providers often tempt people to buy products outside their budget (which they might not even need) and make impulse purchases. I have witnessed many people juggling between loans and digging deeper and deeper into the debt trap, believing that they are doing the right thing as everyone else around them seems to be doing the same.

It bothers me a lot when I think about the culture we are creating for our younger generation. What happened to the good old habit of saving up for buying something that we need? Instant gratification and FOMO are pushing people into the debt trap and we as a society are glamorising the credit-based culture.

While BNPL may offer consumers some flexibility that can be very helpful during hard financial times, but there are many downsides. For undisciplined customers, such products are like drugs that might provide short-term happiness and pleasure but leaves the users with a huge debt that will bring down their financial health. Many a times, people buy things which they didn’t even know about until they were target marketed. ?The process to avail of BNPL is so easy that it removes any hesitation a customer might have about impulse shopping. It is like allowing an infant to play with fire.

Also, not only does it promote consumerism and over-indebtedness, but, in the long run, it is also bad for the environment as it creates a lot of waste by promoting the sale of stuff that most people don’t need.

So, I leave you with these questions:

• Is rampant offering of BNPL products to mass market/ unaware customers providing an inclusive solution or is it spreading the menace of FOMO and growing over-indebtedness in our younger generation??
• Shall providers not be mandated to focus on enhancing the financial awareness of our youth so that they can choose these financial products wisely?

Please share your views!

Thanks and Regards

Sachin Bansal ([email protected])

#FinancialAwareness #FinancialLiteracy #FinancialEducation #FinancialFreedom #Credit #BNPL #financialeducationservices #FOMO #YOLO #Consumerism