Debt training wheels

Posted by Flux on 

17 January 2024

What’s trending?

During this time of economic uncertainty, we’ve begun to see an increased incidence of easy credit. Lenders are making it easier to obtain loans, some of which have exorbitant penalties for defaulting on payments. In South Africa Sunshine Loans offers payday loans of R4 000 or less while Wonga offers loans for up to R8000. Buy Now Pay Later (BNPL), where a customer receives a product or service upfront and spreads the cost over a fixed number of payments interest free, has exploded over the past couple of years. Globally, there were 360 million BNPL users in 2022. Another offering is the short-term, high-interest car title loan which uses your vehicle as collateral. It is highly accessible and easy to qualify for. Pawn Car SA is a local lender offering this service – it even  advertises “Blacklisted Welcome” on its website. 

Why is it important?

If all goes well, and lenders pay their loans on time, these offerings provide an alternative to traditional forms of credit. According to a recent study by PYMNTS Intelligence, 28% of millennial and Generation Z consumers in the US would abandon a purchase if BNPL were not available at the checkout. These loans are particularly appealing to those who earn below average incomes and are not credit-savvy. They may be borrowing money to pay for luxury items that they wouldn’t ordinarily afford, or, as is becoming more common, borrowing for necessities such as groceries and electricity. Roughly 1 in 7 millennials in the US use BNPL to pay for groceries. Borrowers, who are often living paycheque-to-paycheque, are drawn to these quick-and-easy loans. “They tend to have maxed out credit cards and can’t use those any more so they are turning to buy-now pay-later. More and more people are getting caught in a debt spiral,” says Claire Tacon, financial counsellor at the Consumer Action Law Centre in Melbourne. The speed at which consumers choose a payment method is a recipe for misunderstanding (or entirely disregarding) the terms of use. These forms of credit are largely unregulated thereby exposing consumers to unwanted risks. At present, in South Africa, BNPL products do not fall under the scope of South Africa’s National Credit Act and hence are not regulated by the National Credit Regulator.

What can businesses and policymakers do about it?

Policymakers must keep pace with loan providers to ensure that consumers are protected. Loan providers themselves should implement responsible lending practices by considering whether a prospective customer can afford to pay back the money. Local BNPL platform Happy Pay, for example, requires borrowers to sign up for an affordability assessment, powered by AI, before credit is granted. Lenders should clearly communicate terms and conditions to customers. Transparency about fees, repayment schedules, and potential consequences of missed payments is essential. Also, avoid promoting excessive or impulsive spending. Stay up to date with regulations and guidelines related to your services, compliance after all is crucial to avoid legal issues and to maintain trust with customers. To thrive in this evolving  landscape, retailers should partner with BNPL platforms and ensure that there is seamless integration of the service into customers’ shopping journeys. Train your sales and customer support teams on BNPL, so they can assist customers with questions or concerns. They should know what the specific BNPL partnerships entail in order to answer customers’ questions. Aim to find a balance between financial gain and protecting the interests of consumers. 

By Faeeza Khan

Interested in something you can own past the lifespan of the manufacturer?

Why not sign up for our virtual Foresight Skills for Everyone workshop? 

The virtual version of our Foresight Skills for Everyone workshop has been created to help you to become a Futurist in your professional or personal life. This workshop will help you to:

  • Become a futurist by confidently knowing what the future holds.
  • Play with the future by using trends to make the future real and accessible.
  • Build the future by allowing you to tap into future creation with your senses and diverse perspectives while creating diverse and inclusive future worlds, products and services.

If you want more personal agency to determine the direction you or your business will go, this workshop is for you!

Click here to secure your seat.

Image credit: Robert Linder

Arrow Up

Related Trends

The Business of Disruption: “Futurenomics” Edition 
The State We’re In 2022 – Six Key Trend Pillars for 2022
What to expect from BizTrends 02.02.2022
Die wêreld en besighede in 2022, BRONWYN WILLIAMS – WINSLYN | 30 DES 2021 | kykNET
Through the eyes of Gen Z: A glimpse of the Post-Pandemic Workplace