Listen to this article now
Frequent online shoppers can hardly avoid the proliferation of buy now, pay later (BNPL) offerings they’ve seen at checkout in recent months. The popularity of these monthly installment programs has skyrocketed. And with interest-free monthly payment terms, shoppers can be easily enticed to pick a BNPL option and, in some cases, end up preferring it over credit card payment in the majority of their purchases.
But while BNPL might seem like a convenient and seemingly money-saving shopping method, its use raises myriad debt and data privacy issues, so much so that Apple is now under investigation from the Consumer Financial Protection Bureau (CFPB) into anti-trust and privacy concerns for Apple Pay Later, its own BNPL program.
While it’s unclear whether the CFPB will actually bring up charges against Apple, the action is definitely being seen as a warning shot to Big Tech that any similar actions it takes, particularly as they relate to the use of customer data and profits, will not go unnoticed.
As much as BNPL might benefit merchants who see an increase in cart size and a reduction in abandoned carts, with a fee that’s pretty close to what they’re paying with credit card payment methods, the cost to consumers could come in much higher than they currently see on their monthly statements.
Is The Consumer Actually Saving Money Using BNPL?
When the option of a BNPL program is offered as a payment method at checkout—think PayPal, Klarna or Afterpay, just to name a few—it can be difficult for shoppers to understand whether the terms being offered to them are actually cheaper than using a credit card, even if the BNPL happens to be interest-free.
Additionally, low installment rates and far-off due dates can be incredibly tempting, conceivably causing an increase in impulse shopping, as well as a rise in larger, more expensive purchases that they might not have considered without a BNPL option, both of which can lead to accumulating debt. Some may wonder whether the decrease in credit card debt in the U.S. was actually because that amount was being replaced by BNPL debt.
While shoppers might feel, at least at the time of purchase, that they’re somehow saving money—perhaps with an interest-free BNPL program or one that has a lower interest rate than their credit card—the potential for them to be paying much more money further down the road, whether it’s in fees or just in the added debt, could be quite high.
Is Using BNPL A Data Privacy Mine For Big Tech?
Perhaps even more concerning than the issue of consumer debt growth is the access to consumer data that Big Tech might have with a foray into BNPL and Big Tech might use it. That’s one of the main reasons Apple is being investigated by the CFPB. The concern remains that Apple—and for that matter other Big Tech companies—could combine the consumer purchase information with personal information like health data, geolocation history or browsing history.
With his eye on the global payments landscape—particularly in China where two companies, Alipay and WeChat Pay, have over 2 billion combined users, Rohit Chopra, director of the Consumer Financial Protection Bureau, finds the move toward that type of system worrisome. Without regulation, Big Tech could potentially exploit data and e-commerce.
Laws Are Coming, But Not Fast Enough
So far, California is the first in the United States to consider looking into BNPL programs and regulating BNPL as loan products, with other states positioned to take its lead. As of yet, there are no federal bills in the hopper. In the European Union, Germany has stepped to the forefront and is expected to establish regulations pointed directly at BNPL programs, given the growing popularity of installment payments.
Until specific laws are enacted that provide limitations for Big Tech companies aiming to hop on the BNPL train, it’s up to consumers to do their research and think hard about the financial and personal data ramifications over the long term. Simply put, the potential for increased consumer debt and data privacy violations gives the whole “pay later” in buy now, pay later a different and, possibly devastating, meaning.
Disclosure: Futurum Research is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of Futurum Research as a whole.
The original version of this article was first published on Forbes.
Shelly Kramer is a Principal Analyst and Founding Partner at Futurum Research. A serial entrepreneur with a technology centric focus, she has worked alongside some of the world’s largest brands to embrace disruption and spur innovation, understand and address the realities of the connected customer, and help navigate the process of digital transformation. She brings 20 years' experience as a brand strategist to her work at Futurum, and has deep experience helping global companies with marketing challenges, GTM strategies, messaging development, and driving strategy and digital transformation for B2B brands across multiple verticals. Shelly's coverage areas include Collaboration/CX/SaaS, platforms, ESG, and Cybersecurity, as well as topics and trends related to the Future of Work, the transformation of the workplace and how people and technology are driving that transformation. A transplanted New Yorker, she has learned to love life in the Midwest, and has firsthand experience that some of the most innovative minds and most successful companies in the world also happen to live in “flyover country.”