Rising popularity of 'Buy Now, Pay Later' scheme in Canada exposes its shady aspects
In recent years, Buy Now, Pay Later (BNPL) services have gained significant traction in the Canadian fintech industry. Offerings from companies like Affirm and PayBright have become increasingly popular among consumers, providing a flexible repayment structure for daily expenses such as groceries and takeout.
According to a report from ResearchAndMarkets.com, the growth of BNPL in Canada is expected, with payments via BNPL projected to grow by more than 10% annually, reaching nearly US$8 billion by the end of this year. However, this rapid increase in popularity may have unforeseen consequences due to BNPL's regulatory status and the financial habits of Canadians.
BNPL operates in a regulatory grey zone, neither classified as a credit card nor a traditional loan. As a result, most BNPL 'debt' is not counted by traditional debt trackers, according to a report by Vass Bednar for The Walrus. This fact, coupled with Canadians' record high consumer debt of $2.5 trillion as of 2024 (as per a recent TransUnion report), raises concerns about the potential for increased financial vulnerability.
Despite BNPL being theoretically safe, there are worries that Canadians have not shown fiscal responsibility in handling these payments. Bednar, in his report, warns that the instant gratification provided by BNPL can mask financial fragility. He believes that BNPL has exposed the demand for alternative repayment structures and the shortcomings of legacy public finance tools.
Bednar is optimistic that we can take advantage of the design, flexibility, and immediacy of BNPL without importing its predatory risk model. He suggests that BNPL should be subject to consumer protection legislation, similar to credit card regulations, to ensure that Canadians are protected from potential financial harm.
Governments like Canada have treated BNPL as a harmless innovation so far. However, Bednar argues that this approach may underestimate the problem. He believes that the problem of BNPL in Canada could be bigger than anticipated due to the fact that most BNPL 'debt' is not accounted for by traditional debt trackers.
In conclusion, the growth of BNPL in Canada is a significant trend in the fintech industry, with potential implications for consumer debt management. As the use of BNPL services continues to expand, it is important to consider the potential risks and take steps to protect consumers from financial harm.
