In the previous blog on Buy Now Pay Later (BNPL) services, we discussed the benefits and appeal of such services. But beware: BNPL services seem attractive, yet they carry serious risks. In this follow-up, we'll explore the downsides of BNPL and how to protect consumers from the potential pitfalls of this payment option.

Problematic figures

The main risks of BNPL are that it encourages overconsumption and can drive consumers into debt. Purchases are made that customers cannot actually afford, and because BNPL is not recognized as a form of debt, late payment penalties often come as a surprise. Fines and debts thereby particularly affect vulnerable groups: people with weak financial situations, young people with impulse control problems, and minors (AFM, 2024; Khan & Vilary Mbanyi, 2022). All this points to a worrying trend in the way BNPL services are used. And the numbers don't lie: four times as many people fell into debt because of BNPL compared to 2018 and up to 600,000 iDEAL transactions were conducted by minors (AFM, 2024).

Earnings model

The Financial Markets Authority (AFM) warns that BNPL's revenue model often depends on late payment penalties, which can account for up to 40% of revenue (AFM, 2024). An unintended consequence of this is that providers benefit from making BNPL services attractive. For example, they emphasize that BNPL is free, while leaving the potential costs in the fine print. So-called dark patterns happen online on a large scale (Johannesson, 2021). Not always with malicious intent, but given that four times as many people went into debt due to BNPL in 2021 compared to 2018 (AFM, 2024), worrying.

Dark patterns are in fact a type of “negative nudges.” While nudges in their original, ethical sense are meant to subtly steer people toward choices that are in their best interest, dark patterns do so in a manipulative way that is often in the interest of the designer or company, not the user.

Where does the responsibility lie?

Although consumers also have responsibility, they have difficulty understanding the consequences of BNPL if they are not fully informed. Moreover, as human beings it is very difficult at all to make rational choices that do not serve you directly. When the temptations of BNPL are so strongly emphasized, why not take advantage of them?

Take action
Fortunately, there are also positive developments. Several agencies, such as Pak de Macht and De Nederlandse Vereniging van Banken are sounding the alarm, and the government is taking legal action to mandate age verification at BNPL. Other forms of consumer protection are also being researched: for example, Riverty and the AFM jointly studied the effect of a payment reminder by text message, which led to a 20% reduction in late payments (AFM, 2023).

Responsibility of online stores
Offering BNPL does not have to be a problem in principle, but in order to serve your customers with good conscience, you as an organization can already direct behavior in a positive way with simple adjustments. The first tip we give is to check your website for dark patterns. 

• Aesthetic Manipulation: This includes visual manipulations such as using striking colors and fonts to emphasize certain actions.
  Example: An e-commerce website uses bright green and large fonts for a high-interest BNPL option, while other options are displayed in gray and small font.
• False Hierarchy: This means that certain actions are visually more heavily displayed than others, making users inclined to choose the “suggested” option.
  Example: During checkout, BNPL option as a favorite is twice as large in a clear CTA, while the option to continue without BNPL is in small, less conspicuous text.
• Hidden Information: Information about alternatives is hidden or made difficult to find.
  Example: When signing up for a BNPL option, the possible costs and conditions are hidden behind an unobtrusive link in small font at the bottom.
• Preselection: This means that certain choices are selected by default without the user noticing.
  Example: During checkout, a BNPL option is selected by default without user confirmation.
• Nagging: This refers to repeated attempts to direct the user to a specific action.
  Example: Repeated pop-ups urging the use of BNPL.

We are also testing for our clients to offer but not encourage BNPL options. For example, for one of our clients, we actually used default to nudge people toward iDeal (a direct payment method). We found that by pre-selecting the iDEAL payment option (default), the number of Klarna payments decreased by 14.17% (both desktop and mobile), without affecting conversion.

A/B test iDeal default

In addition, we are testing on hiding BNPL options so that it is not among the first payment options. You can also think about changes in copy so that the emphasis is no longer on ‘free’ or ‘pay in installments. With these kinds of interventions, we make it a little harder for the customer to choose BNPL options without removing the option.

Would you also like to contribute to a fairer BNPL offer? We would be happy to help you test and implement effective changes to your website, please feel free to contact on.

References

AFM (2024). Buy Now, Pay Later: Exploring a new trend.

Johannesson, I. (2021). Dark Patterns in Digital Buy Now Pay Later Services.

Khan, A., & Vilary Mbanyi, A. (2022). Millennial's fashion buying behavior from Buy Now, Pay Later perspective: A study of Buy Now, Pay Later (BNPL) and its influence on millennials buying behavior andconsumption when mobile shopping.