Misinformation obscures buy now/pay later's benefits to consumers

If you've shopped online lately, you've probably seen a buy now/pay later option in your checkout options. That's because millions of savvy consumers are increasingly enjoying the benefits of this new and innovative service to manage their cash flow and avoid unnecessary interest and fees.

BNPL adoption rates have skyrocketed over the past year, as consumers flocked to this new service that offers flexibility, price certainty and zero to low fees. But misinformation about BNPL products muddies the water. It obscures the fact that these products are safe, transparent, and transformational for tens of millions of Americans who previously had to rely on high-cost credit cards or predatory credit products.

Here are the facts about buy now/pay later and how such offerings empower consumers with financial choice.

BNPL providers offer low-cost and flexible payment options, including direct payments, pay after delivery, and options to pay over time. The typical Pay-in-Four model that firms like Afterpay, Klarna, Zip and Sezzle use allows consumers to pay for a purchase in four interest-free installments over six to eight weeks. BNPL providers primarily using this model make the vast majority of their revenue from their merchant partners.

The results speak for themselves: Approximately 95% of BNPL users don't experience late charges. Many consumers use BNPL to manage their cash flow for small-dollar purchases, and most users had five times the total purchase amount in their account when using the BNPL payment option.

Buy now/pay later is fundamentally different from revolving debt products like credit cards or payday loans. That's because BNPL companies only succeed when people make their payments. If users are late, they are shut off from further use of the product and must resolve their payment plan. In contrast, credit cards and payday lenders benefit from consumers who are late or do not satisfy their payments. In fact, credit card providers make the majority of their revenue from interest charges and have been found to cost vulnerable customers up to 225% of the product purchase value in interest.

Put simply, BNPL models depend on customer repayment success, not failure. It's a win-win for consumers, who benefit from low costs, and for merchants, who continue to see their businesses grow.

Amid the surge in BNPL adoption, some say that these services need to be regulated. We agree — and the good news is they are. BNPL providers follow applicable lending and licensure laws enforced by the Consumer Financial Protection Bureau, the Federal Trade Commission and various state regulators. All BNPL products are subject to consumer protection laws and regulations, including anti-money laundering, fair lending, credit reporting, debt collection, privacy, fair treatment of customers and electronic fund transfers. They also are subject to similar state consumer protection laws.

Looking ahead, we at the Financial Technology Association are hopeful that regulators will strengthen access to BNPL services by modernizing how credit bureaus assess these kinds of payments and using our companies' data to help consumers build credit. Our member companies are working with the credit bureaus to develop the necessary modeling to correctly categorize the positive nature of short-term payments made with BNPL.

Ultimately, we should strengthen access to transformative fintech services like BNPL, not put up barriers that reduce consumer choice and make it harder for people to manage their money. We will continue to work closely with federal and state officials to help craft policies that allow consumers to continue using innovative payment options that help them achieve financial freedom and security.