Did we just all get too excited about BNPL?

Buy Now Pay Later (BNPL) is just another consumer credit option amongst many and now looks as if it will complement rather than displace other methods. As the hype fades along with the eye-watering valuations, it is perhaps time to realise that the emperor was not wearing any clothes.

I never bought now to pay later and, with the obvious exception of my mortgage, I never will. I didn’t  like the idea and I never believed in it – although I was lucky enough to take a few quid off Klarna in the early days when they were looking for help to build market share with merchants. It was all smoke and mirrors of course, but I was seduced by the energy and the belief that it was going to change payments forever.

Maybe it’s my age or maybe it’s my wealth, but I never want to have to admit that I can’t afford something so I simply react by not buying it. Of course I understand that not everyone has the same luxury, although I entirely agree with money saving expert, Martin Lewis, if you can’t afford to order a meal through Deliveroo and pay for it there and then, then really you should go without. That seems like the right kind of behaviour in a period of austerity that we’re all having to embrace in different ways, whether it’s turning down the thermostat, or turning the heating off altogether, or investigating meals that simply don’t cost so much to buy and cook.

A Happy Meal for four at MacDonald’s will cost you £22-28, or in my world, 3 meals a day for 3-4 days. Something has gone horribly wrong when I can buy burgers on credit, which seems like a reward for bad behaviour. Of course, this is the worst end of BNPL, when it is mostly used for purchases that simply cannot be made in full there and then by more and more people. But the tide is clearly turning against it.

Multi-billion $ valuations were never going to pay off

Now, of course I can’t help enjoying a moment of schadenfreude, as I discover that last year Klarna had reached a valuation of $45.6 billion only to see it collapse to today’s figure of around $6.7 billion, which is maybe a more realistic valuation based on where BNPL fits as a payment method alongside all the others that are available. And it may be a better option in terms of cost and convenience than credit cards, but I’m pretty sure that none of the credit card companies feel remotely under threat from this method of payment.

Of course, as a writer on and supporter of retail, I should support BNPL, because of course as everyone knows the retailer gets paid upfront, so anything that helps the cash flow is all good. However, it’s worrying to hear about BNPL’s little secret, which I hadn’t been aware of, which is that it encourages returns. Reported in the Sunday Times, one fashion retailer did some research and discovered that shoppers buying everything on interest free credit returned about 30% of everything they received, whereas those who put down a deposit returned only 12%, all of which results in lower margins for retailers that offer this method of paying.

Welcome to business as usual

It has been suggested that the BNPL companies will simply adapt their offer in order to grow, but the danger now exists that retailers stop offering it as a service, particularly as the media is very much against it, as it reports more and more stories of consumers getting themselves into difficulties with debt.

What is most likely to happen is that BNPL will survive, because it works well for certain types of retailer, but that there is simply not enough room for all the players. More consolidation is coming and future valuations will be based more on revenue, and that is as it should be.

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