Buy Now Pay Later and Travel’s Reboot

by Robert McGarvey

Everywhere we turn the buzz now loudly proclaims that travel – leisure travel – is back and, sure. there is muttering that the rebound of business travel is just around the bend but I don’t believe that and doubt that many of the people predicting it do either. But they want to believe it because our travel economy’s health remains fragile.

Eyes now are on leisure travel and four initials BNPL as the potential cure for what ails travel. Buy Now, Pay Later. Many in the travel industry are now busy buffing BNPL offerings, to entice consumers into more leisure travel. Amadeus research underlines the potential payoff to an industry struggling for survival. Per Amadeus:

• 68% said BNPL would encourage them to spend more than usual on summer travel
• 49% said they would be more likely to buy airline ancillary services if BNPL was offered

Here’s a moral – maybe also a pragmatic – question: is it good to put leisure travel on credit? That is, to pay it off over time. Is that a smart consumer tactic?

A simpler question: Isn’t BNPL just credit, as in cards, with a catchier 2022 name? Nope. There is a significant difference. Put $5,000 on a credit card funding a Spanish vacation and you can pay anywhere from $5000 back to multiples of that depending upon the interest rate charged on your card and how much you pay back, how fast.

BankRate has a for instance where $5000 is put on a credit card with 18.9% interest. The minimum monthly payment is 4% of the balance owed, $200 to start. Pay only that and, take a guess, how long will it take to repay that $5000?

11.4 years (137 months). Total payments will be $8109.

Ouch.

Where BNPL differs is that, typically, a monthly payment is specified in the origination paperwork and, in many cases, payback is timed for a couple years.

Gen Z and younger Millennials are said to be wild about BNPL which, suddenly, has become the hot trend in consumer payments. Part of the fuel is that these groups are anti credit card. They also know the horror stories of people paying back a purchase for 10+ years! They want to eschew conventional credit and BNPL, some believe, is their ticket to buying what they want now, paying for it over a specified period, with specified monthly instalments.

There isn’t much new about BNPL. It’s if anything a throwback to 1950s layaway purchases although in that case the customer did not take possession of the item until it was paid off. With BNPL 2022 style the consumer walks out of the store – or the travel agency – with the purchase.

Also new today is that modern technology allows for nearly instant credit decisions. Note that, with many BNPL providers, the decision is not FICO based. Many of the buyers have lower FICO scores anyway so that wouldn’t work. So the issuers frequently look at cash flow in a checking account – is there an extra $100 floating around most months? If yes, then ok the BNPL deal with a $100 monthly payment.

Which brings us back to BNPL and travel today. And the worries thicken. Per Amadeus, “For travel merchants the real [BNPL] opportunity is the product upsell. If the traveler has flexible credit they can potentially afford to make a higher value purchase, or to add more ancillary services.”

Why travel to Hawaii when, for maybe double the money, you can go to the Maldives or the Seychelles and how much cooler are those destinations?

Sure, the debts mount but so?

Actually Amadeus offers an insightful gloss on that so: “Offering this type of payment method isn’t without risk. Travel companies need to consider any risk to their brand that could result from a BNPL partner offering credit aggressively to travelers that are already highly indebted. At Amadeus we are consulting with our customers to assist them with BNPL strategies that prioritize responsible lending.”

Consumers, too, need to watch their own backs. Maybe, technically, BNPL does not involve credit but it clearly involves debt and too much debt is not a good thing.

Am I inalterably opposed to BNPL? No. I see it serving very good purposes in specific cases. In fact I have used a version of it on multiple occasions, getting what amounts to an interest free loan from Apple when I bought a new iPhone or iPad. From Google I got an interest free loan to buy a Pixel phone. In these cases, I had the cash on hand but couldn’t resist stretching out the payments and why not, it was free.

But using BNPL for travel? Color me financially conservative but I just cannot wrap my head around the idea of financing a vacation. This just is an idea I find creepy.

And nudging people into more expensive vacations is integral to the recovery of the travel sector?

Now I am worried.

Are you?