Tercel Keepness used a ‘buy now, pay later’ plan to purchase motorcycle pants from an Australian website, which let her pay in instalments, instead of putting it on her credit card and paying interest.RAFAL GERSZAK/The Globe and Mail
Last year, Tercel Keepness found a pair of motorcycle pants on an Australian website that she wanted to purchase. When she went to check out, her online shopping cart gave her the option to use a buy now, pay later (BNPL) service – short-term financing that allows users to pay purchases in installments. It looked like a good deal to her, so she paid four installments of $76 for the pants rather than the full $300 price tag upfront.
That worked for Ms. Keepness, so a few months later, she used BNPL to purchase an Apple laptop.
The 34-year-old Vancouverite says she chose this option instead of putting the purchases on to her credit card, which carries a high interest rate, as BNPL services are often interest free.
“I don’t use it [BNPL] all the time, but it’s definitely a good option if I need something and I don’t have the money right now for it,” says Ms. Keepness.
She’s not alone. While Canadian consumers were a little slower to adopt these services than their counterparts in the U.S., Australia and the U.K., that’s no longer the case.
There has been a substantial uptick in the usage of BNPL services in Canada for the last couple of years, especially among the younger population, who say they use the service as a financial stopgap when they want something and don’t have the money or want to maintain higher liquidity. But experts say that there could be significant financial consequences to these services as it could mask an individual’s existing money issues.
BNPL payment in Canada is expected to grow by 63.5 per cent on an annual basis, and reach US$5.95-billion in 2022, according to the Research and Markets’ Q4 2021 BNPL survey. Individuals between 25 and 44 years old have shown the highest interest in BNPL, with around 65 per cent saying they would consider this option for their online purchases, according to a 2020 survey by Statista.
As for the reasons why? Respondents to a recent survey from the Financial Consumer Agency of Canada said the most common reasons for using a BNPL service were: to help with budgeting (42 per cent); because they couldn’t afford the entire purchase right away (39 per cent); to avoid interest and fees (23 per cent).
The draw to this kind of service makes sense in these times of high living costs, inflation, and the din of looming recession, which is why thousands of Canadian retailers have jumped on board, including Canadian Tire, Hudson’s Bay, and Lululemon. Amazon.com and Square also made headlines in September after making BNPL services available to their customers. But, depending on the service the user chooses, there could be financial penalties and drastic interest hikes if the user fails to make a monthly payment.
This concept of paying through installments is not entirely new; the idea of purchasing on “layaway” was popular for decades as a way to buy anything from clothing to furniture. But there is one fundamental difference between layaway and BNPL that Bruce Sellery, chief executive officer of Credit Canada Debt Solutions in Toronto, says is problematic: “Buy now, pay later doesn’t delay gratification.”
“The genius with the layaway system is you put the item behind the counter, and you could visit it, or peer through the window at it, but you couldn’t take it home until after you made all of your payments,” he explains, “but with buy now, pay later, it supports the culture of instant gratification that we’re already too used to.”
Mr. Sellery says he fears that by using this service, consumers could be masking existing cash flow problems by making their financial life “muddy.”
“It comes back to this question of: Are you living within your means? It’s kind of hard to tell.” He adds that BNPL services, much like credit cards, don’t feel like a person’s money and, therefore, doesn’t hurt the same way it would if they were using cash, and that is a recipe for overspending.
Indeed, nearly 70 per cent of BNPL users admit to spending more than they would if they had to pay for everything upfront, according to a 2022 survey from U.S.-based online lender Lending Tree.
But some say that while there is reason to be wary of overspending with these services, they can provide a very needed function in times of financial hardship.
Ryan Brough, chief executive officer of Gratify, a Vancouver-based BNPL service that went live a few months ago, says he designed his company around the idea that this payment method could “actually help people.”
“A higher cost of living has had an impact on all of us,” he adds. “A year ago, people maybe were doing more discretionary spending on BNPL, but what we’re seeing now is people buying slightly larger items that they would like or perhaps need – like home services, when you need a new roof, or things like online courses – that are meant to better their homes or their life.”
Mr. Brough explains that Gratify has teamed up with several institutions that offer different courses, like beauty courses, so that people can pay for these classes in installments instead of shouldering the price of the tuition all at once.
“We see news coming out of Australia and the U.K. talking about the need for regulation to stop people overspending and I absolutely agree with that,” he adds. “The industry needs to be regulated or the BNPL providers need the features within their products to … stop advertising to people to encourage them to buy more things.”
As for Ms. Keepness, she says that she doesn’t intend to use BNPL services for everything, but she’s certainly happy it’s there.
“It’s a good option if you’re living paycheque to paycheque, which a lot of people are doing in Vancouver,” she says. “Because big purchases can take a huge chunk out of your bank account.”