The "Buy Now, Pay Later" Trap: Is It Helping or Hurting Gen Z?
Introduction
Imagine buying a new phone or a pair of shoes, and paying for it weeks later without having to pay a single penny
as interest. This is the reality of the “Buy Now, Pay Later” (BPNL) schemes. Users having the capability to purchase
a variety of goods, simply by splitting them into separate payments, has led to the rising popularity of BPNL
schemes. This rapid growth in the popularity of BPNL schemes has led to missed payments and hidden fees,
increasing the debt load of users. Since BPNL schemes are based on similar principles of Credit products,
conversations have arisen on whether stronger regulation is necessary to safeguard Users from the “Buy now, Pay
later” trap.
Why BPNL is loved by Genz?
To start, Buy now, pay later schemes are small, short-term installments without interest. Usually, these installments
span over 4-6 weeks, and since they are used for small purchases, approval for these plans are relatively easy.
Usually, Customers split purchases into 4 payments, one part which is paid at checkout, and the remaining
automatically deducted every 2 weeks. No interest is charged at all, on the premise that the payments are made on
time. Due to the fact that these plans are easier to get, they are also easier to abuse by Gen-Z. These BPNL
services are usually built into applications, such as “Klarna”, “Afterpay”, “Tabby”, and “Tamara”. Other Companies
like Shein and Zara, also offer BPNL services at checkouts for adults. Along with companies promoting this service,
it’s also promoted by Influencers and figures on other platforms, rapidly increasing its appeal and hence popularity.
Even though most of Gen-Z cannot legally use these services, the visible integration of these services into globally
popular stores normalises the concept in their minds. As of 2024, 67% of BPNL users are under 35, showing strong
popularity among Gen-Z (CFPB, 2024). I believe that the reason that Gen-Z uses BPNL is because of the
convenience and speed of the BPNL services and their approvals. To add, 70% of users choose BPNL services,
specifically because they avoid credit card interest (CFPB, 2024), which can be very helpful. Users also enjoy using
BPNL services, because the splitting up of expenses can help them budget, and manage their finances. Along with
the 2 existing reasons as to why BNPL is popular being its usefulness for budgeting, and its emergence as a
shopping trend, the psychology behind the BPNL service is the most important. The BNPL splits expenses into
smaller payments, making a purchase seem more manageable. Users can avoid credit card debt, by splitting their
purchases over longer time periods, instead of a large one-time expense which could put them in debt. Lastly, they
are able to buy almost whatever they desire, without the money upfront. In conclusion, I believe that due to these 3
factors, the “Buy now, Pay Later” service has become increasingly popular, especially amongst Gen-Z.
The Risks of The BNPL - “The trap”
While the BNPL service may seem convenient and harmless, missing payments can result in added interest/fees,
harming credit, and overspending. This service also causes Gen-Z to make impulsive decisions, as the feeling of
being able to purchase anything without the money upfront, can cause people to buy products which they won’t be
able to pay for. In fact, 43% of users missed at least 1 payment in the last 12 months, (CFPB, 2024). This statistic
paired with the fact that missed payments can harm credit scores, shows just how detrimental the BNPL service is
to those who use it incorrectly. Late fees reportedly increased by 30% from 2021 to 2023 (CFPB), as the BNPL user
base grew. A problem with this service is that it entices customers to purchase products they may not even need,
due to the fact that they can. The service almost places power in the hands of customers, as they can purchase
anything they desire, without having to pay the full price at once. This power is then misused resulting in late fees,
and a harmed credit score. There is also some form of nuance, as even though split payments can feel convenient
and help customers manage their finances, it can cause them to lose track of their spendings, since payments feel
small. The BNPL service can become increasingly harmful, when customers take up multiple plans simultaneously.
This can cause more potential missed fees payments, and a lower credit score.
Should the BNPL be regulated?
I believe that “Buy now, pay later” schemes should be regulated to help users avoid fees and digging themselves
into debt. Some form of regulation should be put into place due to various problems such as the lack of affordability
checks, loan stacking, hidden fees, and the fact that consumers do not understand that “BPNL” is simply a form of
credit. All these problems combined, make the need for regulation increasingly clear. The UK has already placed
regulations bringing BPNL under formal consumer credit in the year 2026. This means that payment will have to be
approved by the FCA (Financial Conduct Authority) and borrowers will have to clearly explain repayment terms.
Furthermore, In Australia, the BPNL schemes fall under the national consumer credit protection act. These
schemes must have a “credit license”, which means that operations should be responsible, and the ability of clients
to purchase more expensive commodities must be checked. Following the regulations in Australia, Experian carried
out research, finding out that there was a positive impact on BPNL schemes in Australia. An example of this is that
Gen Z users of the BPNL had credit scores of 685 on average, while Gen Z users of credit cards had an average
score of 677. This shows how after the regulations, BPNL schemes caused Gen Z users to become less risky
borrowers. Additionally, in 2025 a small percentage of BPNL schemes missed payments of 2.9% as compared to
personal loans of 3.7%. Additionally, research also showed that 62% of BPNL scheme members felt more confident
using these schemes, as they felt better informed and more protected. In all, I believe that regulations should be
placed on Buy now Pay Later schemes, as they enhance consumer protection, use affordability checks to lessen
the risk of unaffordable debt, and increase trust and transparency in the financial system.
Conclusion
While “Buy Now, Pay later” schemes allow for accessible and flexible payment plans, their growth has
shed light on the potential impactful risks for consumers. Countries that have already set regulations, including
affordability checks, licensing the BPNL providers as official regulators, and transparency practices like clear
presentation of important service information. These regulations have shown to reduce the amount of missed
payments and increase consumer confidence. Therefore, regulating BPNL as a form of consumer credit,
guarantees that its usage is ethical, also prioritizing long-term financial stability.
Bibliography
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