Submitted by Atlas Indicators Investment Advisors on May 31st, 2024
Ghosts are typically associated with negative connotations. Only Casper the Friendly Ghost comes to mind as an apparition with a positive reputation. Unlike his spooky peers, this one is kindhearted, seeking to befriend people, not scare them. Banks can sometimes get a bad rap as well. After all, their reputations haven’t fully recovered from the frightening episode known as the Great Financial Crisis even though the financial system has run relatively smoothly since.
Could there be a Casper-like characters in the economy? You know, lenders that try daily to befriend consumers. Perhaps the Buy Now Pay Later (BNPL) firms fit the bill. You likely see them from time to time as you make an online purchase. In short, they offer to take installment payments so you can have the goods you desire now. Seems friendly enough. Right?
Perhaps these well-intended lenders are morphing unintentionally into more nefarious haunts, ones which could have a negative impact on consumption in the not-too-distant future. According a survey mentioned in this Bloomberg article, 43 percent of those who owe money to BNPL banks were behind on payments. Additionally, 28 percent said they were delinquent on other debt because of they have overspent using these friendly lenders.
Like any ghost, the debts owed to the BNPL companies are difficult to see. Their lack of visibility could make it impossible to fully grasp the health of the consumers using their services. These short-term lenders don’t provide data on their loans, so the debts don’t show up on the credit reports of borrowers, increasing the odds that a traditional lender might extend credit to folks that would not otherwise qualify.
Casper didn’t mean to cause the mischief which ensued episode after episode. Likewise, these BNPL firms aren’t out to startle the economy. Nevertheless, a growing number of consumers are struggling to repay these invisible loans. Growing awareness of these challenges could spook larger lenders, possibly scaring up an economic slowdown or worse.
