Buy Now Pay Later

Short Term

THURDAY 1ST MARCH 2018

Imagine you go shopping for a new sofa and you see one you want to buy. It’s £864 in the sales so you feel you have to act fast before the price goes up again. Let’s say you can’t afford to buy it outright, so you have two options…

Option 1 - You can take out interest-free credit, have your sofa delivered in 2 weeks and pay £24 per month for the next 36 months.

Option 2 - You can save £24 per month and in 36-months time go back and hope it’s still there and still the same price.

For the exact same financial cost do you want it now or in 2 years’ time? The likelihood is that it won’t be available in 2 years but you could still be confident of finding another sofa you like. Though, with option 2 will you actually be disciplined enough save your money? Or do you think you’ll find other things to spend it on in the meantime?

Sofa or no sofa?

If the financial transaction is exactly the same, due to the interest-free credit offer, then most of us would choose to have the sofa immediately rather than wait. Besides, you probably just did a quick mental redecorating of your lounge and know exactly where you’ll put it and what accessories you’ll buy to go with it!

Buy-now-pay-later fits with our instinctive preference to have things sooner rather than later. It’s not just financial, we also do it with other things such as our health, recycling and education... anything where we experience a tension between the now and the later.


The reason behind this is a bias called the ‘hyperbolic discount’, illustrated below. It’s connected to how we understand time and value. In the last blog I described how we experience time in a distorted, non-linear, hyperbolic way. Time doesn’t just alter our experience of events, it also adjusts the value we place on the things we want.

Future benefits incur a value-penalty. This means a £10 item we can have now is worth more to us right now than the same £10 item we can have in a months’ time. The shopping trip we can have this weekend is worth more to us right now than keeping the same money in our savings account for a couple of decades. The cigarette we can have now, or the high-calorie takeaway, or the extra alcohol units are worth more right now than the good health we can experience in the future…

If the main benefits customers will get from using your product or service is a little way off yet, or in fact a long way, are there any shorter, more immediate benefits you can talk about that are more desirable?

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