Exploring BNPL: Risks and Rewards for Generation Z

December 8, 2023

Generation Z’s (Gen Z) enthusiastic adoption of Buy Now, Pay Later (BNPL) has risen in the digital age. Professor Dr Goh Khang Wen, from INTI International University’s Faculty of Data Science and Information Technology (FDSIT), along with colleagues from Universiti Tun Husein Onn Malaysia and Universitas Riau, Indonesia, have shed light on the risks associated with the innovative BNPL business model, especially for Gen Z consumers.

Their collaborative research, titled “Buy Now Pay Later Services on Generation Z: Exploratory Data Analysis Using Machine Learning,” has unveiled the revolutionary BNPL business model. This model allows customers to make their purchases immediately, with or without a down payment.

Prof. Dr Goh’s research unveils the influence of BNPL on Gen Z. The study delves into the innovative BNPL model, granting customers instant possession of their purchases, whether they make a down payment or not.

The study has revealed intriguing insights. It shows that while a significant portion of BPNL users consists of married millennials (52.10%), Gen Z has the highest rate of loan defaults at 34.16%. Furthermore, among Gen Z, the unemployed face the highest default percentage at 32.16%, and those employed for 0-8 months exhibit a default rate of 35.8%.

“In the current digital landscape, where technology shapes consumer behaviour, Gen Z, immersed in technology and born digitally, poses unique challenges and expectations. With the rapid expansion of e-commerce, especially since 2020, Gen Z demands efficiency, simplicity, and a wide range of personalised financing products,” remarked Prof. Dr Goh.

The research also emphasises the importance of awareness among policymakers and consumers alike. Policymakers are urged to consider the unique vulnerabilities of Gen Z, particularly regarding their employment status and the potential financial risks associated with BNPL usage.

“Simultaneously, first-time users of BNPL services may not fully comprehend the financial commitments involved. It is crucial to educate individuals new to BNPL services about their financial responsibilities when opting for this payment method,” Prof. Dr Goh emphasised.

Prof. Dr Goh adds a profound perspective in a broader context: “Understanding the intricate dance between Generation Z and the Buy Now, Pay Later (BNPL) model goes beyond financial analytics. It’s a societal conversation. As we unravel the complexities, it becomes clear that while BNPL services offer convenience, their societal impact is nuanced.”

“The real question is not just about financial transactions; it’s about how this model aligns with our values and aspirations as a society,” he shared.

Prof. Dr Goh suggests that the data analysis exploration methodologies applied in the research can inform service providers, enabling them to make predictions, suggestions, and recommendations. This, in turn, can assist in identifying potential clients and market segmentation, ultimately positively impacting company profitability.

While the research provides valuable insights into Gen Z’s interaction with BNPL services, Prof. Dr Goh notes that further study is needed to identify additional characteristics contributing to credit risk in this demographic. This research serves as a crucial step toward understanding the dynamics of BNPL services in the digital era and encourages informed decision-making among policymakers, businesses, and consumers.

In today’s rapidly evolving financial landscape, the research conducted by Prof. Dr Goh and his team sheds light on how Gen Z interacts with Buy Now, Pay Later services. Their findings also prompt a crucial dialogue on the societal implications of these changing financial dynamics, urging stakeholders to navigate this landscape with informed awareness and thoughtful consideration.