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Understanding how buy now, pay later apps and services work

Adam Parnala — Sat, 30 Sep 2023 08:08:51 +0000

Convenience and speed are two of the most important things in our fast-paced world today. With a single click, we can order groceries, book a holiday or even buy a car. In this ever-evolving landscape, a new breed of financial technology (fintech) apps have emerged, promising to make shopping even easier — ‘buy now, pay later’ (BNPL) apps and services.

But despite the allure of immediate ownership with the promise of future payment, these apps carry significant risks that consumers need to be aware of.

BNPL apps have seen tremendous growth in recent years. They offer consumers the ability to purchase items immediately and pay for them over time, typically without interest if paid within a specific timeframe. It’s an appealing proposition, especially for millennials and Gen Z consumers who are wary of credit cards and traditional loans.

However, there’s a worrying side to this story. Behind the slick user interface and playful marketing, these apps can lure consumers into a cycle of debt that they might not fully understand.

How buy now, pay later services attract consumers

The primary appeal of BNPL apps is the ability to satisfy our desire for instant gratification. We want what we want, and we want it now. These apps tap into this impulse, enabling us to buy something today and worry about the cost later. But this convenience can come with a hefty price tag.

When we defer payment, it’s easy to lose track of how much we’re spending. A few small purchases can quickly add up, leading to larger than expected payments down the line. And for those who miss a payment, hefty late fees can kick in, pushing consumers further into debt.

Another danger lies in the way these apps create an illusion of affordability. By breaking down a purchase into smaller, seemingly manageable payments, they make expensive items appear within reach.

For example, a Php50,000 smartphone might seem prohibitively expensive. But break it down into five payments of around Php10,000 each, and suddenly it feels more affordable. However, the reality is that if you can’t afford the Php50,000 upfront, you likely can’t afford the five Php10,000 payments either. It’s a psychological trick that can lead to overspending and unnecessary debt.

BNPL apps are especially popular among younger consumers, a demographic that is often influenced by trends and peer pressure. In addition, younger people often lack financial literacy. Seeing friends and influencers flaunting their latest purchases on social media can ignite a desire to keep up, and BNPL services provide an easy way to do so without feeling the immediate financial pinch. However, this can lead to a spiral of debt and the constant need to maintain appearances, further exacerbating financial instability.

From the retailer’s perspective, BNPL apps may seem like a win-win situation: they encourage more sales and promise to handle all associated risks. However, retailers could end up paying a high price for this convenience. These apps charge retailers a percentage of each sale, which can eat into their profit margins. Moreover, endorsing such services could potentially harm the retailer’s reputation if consumers eventually end up in financial trouble.

Even though buy now, pay later schemes can potentially be harmful for some people, there’s no doubt that plenty of consumers also benefit from it. Purchasing essentials in installment options can be of great help, especially with the recent global health crisis. Many students who suddenly need their own laptops because of online classes were able to afford one, and continue schooling with the help of these BNPL apps.

Like most things in life, it can be good if used in moderation and with caution.

Risks and consequences of buy now, pay later apps

While BNPL apps often tout “no interest” or low interest as a selling point, many hide substantial fees in their terms of service. Late payments can incur hefty charges, and some services even have monthly account keeping fees. These hidden costs can quickly turn a seemingly affordable payment plan into an expensive proposition. While older Filipinos are often wary of predatory loans because of their ‘horror’ stories with credit cards, the younger generation is mostly unaware of it.

Many BNPL apps and services disguise themselves as a technology company (like WeWork), enabling them to lure investors and raise capital at a much higher valuation. With plenty of funds at its disposal, these companies managed to offer lower interest rates compared to other conventional loan options. This allowed them to attract more customers and at a faster pace. Once they have a larger customer base and a significant portion of the market share, they will gradually increase the interest rates and fees, similar to the business strategy of the likes of Uber, Grab, and other tech giants.

Perhaps the most concerning aspect of BNPL apps is their lack of regulation. Despite functioning much like credit cards, these services aren’t subject to the same regulatory scrutiny. They don’t have to conduct credit checks or clearly disclose their terms and conditions. This lack of transparency can make it hard for consumers to understand what they’re signing up for, leading to unpleasant surprises later on.

Although most BNPL services don’t check your credit score before approving your purchase, they can still impact your credit history. Some apps report missed payments to credit bureaus, which can lead to a lower credit score. This could affect your ability to secure loans or mortgages in the future. In other words, that impulse purchase today could cost you so much more down the line.

Given the risks and growing popularity of BNPL, there’s a clear need for greater oversight. Regulatory bodies must step in to ensure these services are transparent about their fees and the potential impact on users’ financial health. Consumer protection laws should be revised to cover these new types of financial services, ensuring that users are protected from predatory practices.

The rise of BNPL services highlights the need for greater financial literacy. Many consumers don’t fully understand the implications of these services, including the potential impact on their credit score and long-term financial health. It’s crucial to educate ourselves and make informed decisions, rather than being seduced by the promise of instant gratification.

While BNPL apps offer a convenient alternative to traditional credit sources, they also pose significant risks. Their appeal lies in their ability to tap into our inner desires and create an illusion of affordability. Yet, this convenience can lead to overspending, unexpected debt, and financial hardship.

To protect consumers and promote financial health, it’s essential that we advocate for stricter regulation of BNPL services. This includes mandatory credit checks, clear disclosure of all fees and charges, and caps on late payment penalties. Additionally, these companies should be required to promote financial literacy as part of their business model, helping consumers understand the implications of their purchasing decisions.

As consumers, we must approach these apps with caution, understanding their risks, and making responsible financial decisions. It’s essential to remember that when it comes to financial health, there are no shortcuts. True financial freedom comes from disciplined saving, prudent spending, and wise investing — not from an app that encourages us to buy now and worry about the cost later.

This article, Understanding how buy now, pay later apps and services work, was originally published at NoypiGeeks | Philippines Technology News, Reviews and How to's.

Google clamps down on abusive loan apps

Androel Encarnacion — Sat, 08 Apr 2023 15:49:24 +0000

Google is enforcing stricter measures against exploitative loan apps by restricting their access to sensitive data of debtors.

Predatory lending apps will soon find it harder to use threats, violence and other forms of harassment and blackmail to collect debts, as they will no longer be able to see the contacts, photos, and location of their borrowers on their Android smartphones.

Google recently updated its policy on personal loans to explicitly state that apps offering personal loans “may not access user contacts or photos.” The policy change will come into effect by May 31, 2023.

Specifically, personal loan apps are prohibited from obtaining the following permissions:

Access_fine_location
Read_contacts
Read_external_storage
Read_media_images
Read_media_videos
Read_phone_numbers

See also: How to report scammers in GCash

The policy update will also require additional requirements for personal loan apps in Pakistan before they can be allowed on Google’s app marketplace. The current version of the policy already lists extra requirements for Philippine-based personal apps. These requirements include a submission of a personal loan app declaration and registration at the Securities and Exchange Commission.

Google’s updated policy seem to be in response to reports of users from regions such as India and Mexico being blackmailed after failing to repay their loans. To force them to pay, lenders apparently threatened to send incriminating or doctored photos and videos to the victims’ personal contacts on their phone.

This article, Google clamps down on abusive loan apps, was originally published at NoypiGeeks | Philippines Technology News, Reviews and How to's.

Smart to offer buy now, pay later prepaid load with Silicon Valley-based Plentina

Patrick Cañete — Thu, 16 Feb 2023 09:37:17 +0000

Smart Communications Inc., announced its team-up with a fintech startup named Plantina, which is based in Silicon Valley.

The partnership will allow Smart subscribers to purchase a prepaid load and pay for it later in times when they really need it but don’t have the money for it yet.

Thanks to Plentina, Smart subscribers can access the Buy Now, Pay Later service so they can instantly make micro consumer loans to pay for their prepaid load, possibly even the new GIGA Power promos.

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In the future, Smart hopes to extend the service to their retail and device partners to provide customers with a more convenient and flexible mode of payment if they intend to purchase smartphones or other gizmos from Smart.

To start, users should first download the Plentina app and register. If they pass the credit scoring, they can instantly loan and purchase load instantly. This is especially important if you need a prepaid load for emergencies, or for work and school.

Like most loans, the repayment can be done on an installment basis.

This article, Smart to offer buy now, pay later prepaid load with Silicon Valley-based Plentina, was originally published at NoypiGeeks | Philippines Technology News, Reviews and How to's.

DTI and SBCorp RiseUP loan program aims to help MSMEs

Kyanna Angela Bulan — Sun, 08 May 2022 13:29:47 +0000

A new loaning program for micro, small and medium-sized enterprises (MSMEs) was opened by the Department of Trade and Industry (DTI) through Small Business (SB) Corp.

The program is called RiseUP, which targets several sectors, even those with fast-moving consumer goods and involved in travel. This aims to help in the recovery of the economy after the devastating effects of the global health crisis.

The program is also intended to sustain the strength and resilience of Filipinos, so they can rise again post-restrictions and lockdowns, Trade Secretary Ramon Lopez said.

With the said program, MSMEs coming from any industry can apply for loans from Php10,000 to Php5 million with repayment terms of up to 3 years.

If a MSME loans up to Php300,000 or less, the grace period is up to 12 months. On the other hand, MSME loans more than Php300,000 will be given a grace period that can exceed 12 months or up to half of the repayment period.

To qualify for the DTI RiseUp loan program, the business must be Filipino-owned, with at least a year of track record.

This article, DTI and SBCorp RiseUP loan program aims to help MSMEs, was originally published at NoypiGeeks | Philippines Technology News, Reviews and How to's.

SSS unauthorized loan story prompts improvements in online portal security

Androel Encarnacion — Fri, 06 May 2022 12:17:09 +0000

The Social Security System (SSS) revealed that new security features have been deployed to its online portal to increase the protection of member, employer, and pensioner accounts.

Per the statement of Michael Regino, the SSS president and chief executive officer as of March 2022, the My.SSS portal will follow stricter guidelines in the enrollment of a disbursement account. These include the need to provide additional proof of identification as well as new internal procedures for the evaluation and approval process.

Improved security features will be added to the process of a member’s request to update their contact information via the online portal, the operation of which will resume once the security features are implemented sometime this month.

Regino further said that their systems are constantly monitored to ensure that loans and benefits end up with the right recipients. As the security of accounts also depend on the users, Regino advises stakeholders to avoid revealing their login credentials to anyone and to change passwords frequently.

Meanwhile, social media is rife of complaints and reports from apparent victims of scams and fraud that target SSS members. One Facebook user, for instance, exposed a “trick” by scammers that puts your contribution in SSS at risk. It seems scammers need only to change your contact information and change your membership type from compulsory to voluntary in order to have an unauthorized loan processed without the awareness of your employer.

The post went on to claim that the fraud investigation team at SSS was no help at all, and that they would put victims at fault for allegedly divulging their user ID. The fraud team would also apparently give victims the runaround by telling them to ask for assistance from other government agencies instead.

This article, SSS unauthorized loan story prompts improvements in online portal security, was originally published at NoypiGeeks | Philippines Technology News, Reviews and How to's.

MSMEs can now apply for PH gov’t loan online

Androel Encarnacion — Mon, 19 Jul 2021 07:31:33 +0000

The Philippine government is giving small businesses that have been negatively impacted by the pandemic an opportunity to start anew by means of a government loan.

Available via the Small Business Corporation, a government financial institution under the Department of Trade and Industry, the loan is part of the Covid-19 Assistance to Restart Enterprises (CARES) Bayanihan 2. The program offers a loan that is free of interest and collateral to micro, small, and medium enterprises.

Depending on assets and sales figures, a business may be granted with a loan of at least Php10,000 and up to Php5 million, with a maximum payment term of four years.

Applicants can apply for the loan online. First, head to https://brs.sbgfc.org.ph and create an account. Proceed to the application process page, provide your personal and business information, and attach pertinent, required documents. These include proof of business address and a government-issued ID.

The next step is to wait for an SB Corp account officer to contact you and finalize the terms of your application. If approved, you’ll need to pay a one-time service fee that’s equivalent to eight percent of your loan, at most.

So far, SB Corp has approved 31,700 loan applications that total Php4.84 billion.

This article, MSMEs can now apply for PH gov’t loan online, was originally published at NoypiGeeks | Philippines Technology News, Reviews and How to's.