Perspectives podcast: What is 'buy now, pay later'?

Stephen Meurice: Tell me if you’ve been in this situation before. It’s late at night, you’re shopping online.

[SFX crickets, typing]

You’ve just Googled, say, ‘Best spa retreat for a very deserving podcast host.’ And you’ve found the perfect one.

[tropical, relaxing music]

You go to check out and suddenly you notice a little blurb. It says, “Pay in four easy, interest-free payments.” And you think, “Okay, but what’s the catch? Is this too good to be true?“

Laura Scheck: I think it is a good thing, you just have to use it well. 

SM: That’s our guest today, Laura Scheck. And those prompts or ads you see at online checkouts are part of a new trend in payments known as buy now, pay later. You’ve probably seen them, too.

LS: Predominantly you see them on online checkouts, that's exactly right. Buy now, pay later is an instalment plan that you can use to pay for a purchase. This helps you make little payments over time.

SM: Laura is Vice President of Credit Cards at Scotiabank. This episode you’ll hear her speak with Dewlyn D’Mellow from our Perspectives newsroom team. They'll give us a crash course on this emerging way of paying. How exactly it works, how to use it wisely, as well as some helpful tips. Like why it might just come in handy for your next spa day.
  
LS: So, you're going to the spa with your friends and you're the organized one who is doing the booking... It takes a while for people to pay you back. And so, I've split it up over time to give straggler friends time to pay me back. So I found that to be a particularly helpful for me, personally. Smart, right? 
 
SM: Very. I’m Stephen Meurice and this is Perspectives.
 
Dewlyn Dmellow: Laura, thanks for coming back on the show.

LS: Thanks for having me back.

DD: Let's start with what exactly is buy now, pay later? Can you sort of define it for us?

LS: Sure. Buy now, pay later is an instalment plan that you can use to pay for a purchase. So, you would buy something, say $1,000, we would break up that payment in maybe four months. So, you would pay $250 a month for four months and then you would pay off the balance. A little bit different than what everyone thinks it is, which is a don’t-pay-a-cent-event. Which has been greatly branded. Where you don't pay for a long time and then you pay everything at the end. This helps you make little payments over time.

DD: I feel like I've personally been seeing this more and more, you know, over the past couple of years when you get to that checkout somewhere online. You know, you see the grand total. But then you get prompted with this option, like, ‘Split this into three easy payments.’ Is that my imagination? Am I seeing this more often, or is it actually becoming more popular?

LS: It is real. You are okay. You are seeing these things.

DD: [laughs]

LS: Predominantly you see them on online checkouts, that's exactly right. A couple of different companies, right when you get to the end, it asks you, do you want to pay with a credit card or do you want to split your payments over time? It has been quite popular in other parts of the world. Increasingly popular, I'd say, in Canada and the U.S. in the last couple of years. And what has also started to happen, those offerings are often from a fintech. The banks and credit card companies have started to lean in a little bit more and do a different kind of offering that you wouldn't do at point-of-sale checkout. But you do after you get your credit card bill. Same way of working. Take a charge, split it up into several different payments. But when you do it and with whom you do it are the differences.

DD: Mmmm. And we're probably going be saying buy now, pay later a lot, which is a mouthful, let's be honest. BNPL, is that what savvy folks like you like to call it?

LS: Oh yes. Savvy folks like us in banking call it BNPL. We're in a world of acronyms, but BNPL is a quick way to say okay.

DD: Okay. And so the last time you were on the podcast, you talked a bit about sort of this generational shift, if you will, of how people actually look at credit. Is that part of the reason why BNPL is sort of having a moment?

LS: I think it could be. We know people who are between 18 and 24 are the most common users of buy now, pay later. Part of it is because you can do it without having a credit card and having set anything up and you can do it as you checkout. As we talked about the last time, there is something within the younger generation that is just a little uncomfortable with credit. This is a digitally native product. It has been built entirely in our mobile app and it is not even available in the branches. So, as we think about the generation and how they consume and move through life, which is younger than me, so a little bit different, having something that was built entirely there I think is really helpful and makes it quick and easy to use and very popular from that perspective. I think the other piece that's helpful is if you're newer to credit and you're trying to learn your way in, this is a really simple formula, you know what you're going to spend. You know exactly how much you're going to pay every month, which is a portion of what you paid for and perhaps a fee or interest. And it's laid out really clearly and cleanly. So, it feels very transparent because you can see exactly how much you need to pay. You don't need to do any math yourself. All of those fees or charges or just payments are shown right when you enroll in the plan. It takes a little bit of the edge off in not wondering what's going to happen.

DD: No math I like that.

LS: No math.

DD: But how does it actually work? Can you break it down for us? Do the payments automatically come off my credit card will I see an invoice? Like, how does all of that work?

LS: It depends on who you choose to take the BNPL with. So, I'll talk about Scotiabank and the banks first. In that case, you would go, you put the charge on your credit card. You can then go into the mobile app, you see the charge you select to put it into SelectPay, which is what we call it. And it would say, ‘Do you want to pay this off over three months, six months, 12 months?’ You pick and then it automatically rolls that into your credit card bill. So, the next month, when it comes, all your other charges and whatever you owe for your buy now, pay later just shows up as a payment for you. So that I find very easy, I've done it myself. With some of the fintechs, it can be a little bit different. You might have to get a bill or something sent to you because you don't have a pre-existing relationship. So, you’d sign up during checkout, you would find out what the charge is and you would get the terms and conditions then and likely get either a bill that you would need to pay using debit card, sometimes they’ll let you put it on the credit card, but it depends on the different providers.

DD: Okay. Sounds easy enough, but I feel like some customers might look at this and say, ‘Okay, great, I can pay in instalments, but what's the catch?’

LS: I think it is a good thing you just have to use it well. So, if you are going to buy something that you really can't afford, maybe a little bit impulsively and you know that you're not going to have the money to pay it off, that isn't a problem with the service or with BNPL, that's sort of a problem that you're going to create for yourself. Because if you cannot pay it back under the terms that you signed up for, it is going to get more expensive. I expect that there would be some penalties. But if you know that you will be able to pay it off like you think that you're going to, if you know that you can save for when you need to pay it off, or maybe you have an unexpected expense that you really need to pay for, I think it is okay to use buy now, pay later. Same very nerdy advice I gave the last time. When you sign up, you need to read the terms and conditions. You need to understand the fees and pay attention to your obligations, so you know what you're signing up for. For me, if I'm going to use buy now, pay later, I do it off the back of my credit card with Scotiabank. I find it a little bit easier, trust with the organization if I have any troubles. If you use it well and use it properly, it is a great tool for customers. In my own way of using it, I have found it's just a helpful tool [laughs] especially when you’re with a group. So, you're going to the spa with your friends and you're staying at a hotel and you're the organized one who is doing the booking, which we'll see if my friends are listening to this and I get feedback, but often that happens.

DD: [laughs]

LS: It takes while for people to pay you back. And so, I've done the really big charges on the card and I split it up over time to give straggler friends time to pay me back.

DD: Ahhh.

LS: So, I found that to be a particularly helpful for me, personally.

DD: I like that. That's good. That makes sense.

LS: Smart, right?

DD: Mm hmm. And now with a credit card, you pay interest if you don't pay it all off on time. But with buy now, pay later, what's in it for the bank?

LS: So, it is a different lending facility for different customers. What this does is it gives you a different set of customers we find is interested in picking up instalments. So, someone who wouldn't carry a balance. Again, there's math, you have to figure out how much you'll over time. Not having to do the math, having a very clear path to what it's going to be, is getting new people to use their credit card in a different way.

DD: And what questions should people ask themselves when they're wondering whether they should be using BNPL versus just putting something on their credit card like they typically would?

LS: I think if you're going to put something on your credit card and you know you can pay it off when your due date comes. You should do that because you can clear the charge right off your mind. It's paid for. If you need to buy something unexpected and you know that you’d like a little bit more flexibility to help with your family cash flow to pay it over time. It is a great tool. Make sure that you sign up for a term that makes sense. So typically, when you go to sign up for three months or a six months or 12 months, you'll see right there how much is going to cost each period of time. So, make sure you find the amount that fits right for you if you're going to take an instalment.

DD: And what about points? We have to ask about points.

LS: Always points. 

DD: Always points, okay. So, we don't forfeit those sweet points by using BNPL?

LS: No, not at all. If you put the charge on your credit card, you get all the points that you normally would if you have a card that earns points or cashback.

DD: Okay. So you mentioned earlier about using BNPL with a place you trust – it seems like there’s several brands who offer this service including Scotia. I’m sure they’re not all created equal – is there anything people should be looking out for before they click that option at the virtual check-out?

LS: Yeah, the different companies all are offering slightly differently. Some will do a credit check, some won't. The credit card ones just flow right through. So, I would say again, nerdy advice, but take a read and see. I think it's as important to understand, are the fees clear for you? Do you understand what you're signing up for? Are there other pieces that will come with signing up? Perhaps data sharing with different companies, signing you up for different marketing alerts? What does the process look like if you do stumble and stub your toe and you're not able to make one of the payments? Those are all very different between the providers. So, it's again worth having a quick read and scan to make sure you really understand exactly what you're doing.

DD: And what are some of the questions you're receiving? Like, are there frequently asked questions around this?

LS: I think a lot of the questions you've asked are the ones people are interested in. Is this worth doing? When should I use it? Some of the conversations I've also heard are around how do we use this as a good tool for a younger generation who is trying to learn credit and make sure that they learn to use products responsibly, that they're going to get the most out of them, but don't wind up in trouble. I think there has been some research out of the U.S. where people are signing up for buy now, pay later, perhaps not thinking through that end point of needing to do all the payments. Or something happens and they miss them and there is quite an accumulation of debt and that can set people up for uncomfortable situations. Again, it’s why the ones offered through the bank right now we find to be really helpful because it is done within the credit they've already been approved for on your card. There are no extra credit checks and we've already gone through the experience of sizing can you reasonably pay this off and do we think that we're giving you credit within your means based on the credit bureau score that we talked about last time. So, there's a little bit more peace of mind doing it that way.

DD: Okay. And as you mentioned, last time you were on the show, you were talking about common misconceptions around credit scores, are there any misconceptions you can clear up for us around BNPL?

LS: I don't know if there are as many misconceptions or just people want to understand it better because it is new.  So, acronym, why is it everywhere? What is happening? I do think there are questions about whether or not this impacts your credit score. When you use a credit card facility like we have, no credit score check. The other companies are all doing things a little bit differently. So, I guess one piece is everything's a little bit different and it's not regulated as an industry in the same way a lot of the other financial services are in Canada. And so that just means it's hard to give a precise answer because everyone is doing things a little bit differently.

DD: So that question you mentioned just now about how BNPL might affect someone's credit score, what’s the answer there?

LS: When you're using this through the credit cards, like with Scotiabank or the other banks, it doesn't affect your credit score. Because your credit score is really looking at your entire relationship that you have with the card. This is one component of it. Right now, it doesn't affect your credit score with some of the fintechs, but that may change in the future as the industry continues to evolve and people start to understand it differently and regulate it a little bit differently.

DD: Now before I let you go here, and you kind a touched on this before, but what is Scotia currently doing on the buy now pay later front?

LS: So, Scotia has a product called SelectPay. It is in market now. You can use it as we talked predominantly about, after you make a charge, you go into the app and we call it post transaction, you could sign up for a buy now, pay later plan. We've recently launched a point of sale with select merchants. So, when you go to tap at the terminal or online, you'll start to see the option to pay with Visa instalments. And you could do it right then as well right at the checkout, similar to some of the fintechs that we've been talking about. And then we're working on a lot of really cool things to expand it into time. We are proud to be leaders in this space. We have plans to take things beyond credit cards, I think it's fair to say, and just make sure that this is a usable tool for as many customers as possible. And then we're looking forward to using it as a feature, not just linked to credit cards, but to other Scotiabank products as well. I probably am not allowed to share exactly what we're thinking, but there is a really fantastic roadmap of how we can continue to offer this to more customers, to offer the convenience and flexibility in a simple way that's meaningful to them.

DD: Laura, thanks so much for joining us today and explaining the ins and outs of buy now, pay later. I've certainly learned a lot.

LS: My pleasure.

DD: I've been speaking with Laura Scheck, Vice President of Credit Cards at Scotiabank. 

As you heard Laura mention during the interview, this is her second time on the show. The first time she came by to talk all about myths around the ever-mysterious credit score. Laura did an excellent job that episode separating fact from fiction – so give that a listen if you haven’t already. You can find that in our podcast feed and we’ll link to it in the show notes and on the episode page.