Travel Now, Pay Later

Vacation and hospitality booking is the next wave in BNPL.

Picture this. You’re on the beach. The sun is shining and the luxury resort you’re staying at is the farthest from home you’ve been in nearly two years. But you don’t worry about how much it costs. That’s because you, like nearly 60 million people so far in 2022, used buy now, pay later (BNPL) installments to cover the total costs.

In the last few years, we’ve seen consumers increasingly adopt BNPL services to pay over time for big-ticket items when shopping. Now, the next frontier for BNPL appears to be travel. And people aren’t just looking, they’re finally booking.

The timing is right. The Covid-19 pandemic is finally at a relatively manageable stage. People who have waited through months of lockdowns and uncertainty want to take that beach vacation on Cape Cod or the week-long trip to Paris they’ve been dreaming about.

And travel and hospitality companies are now willing to offer BNPL options. For example, Affirm has partnered with Delta Vacations, Priceline and more, and Uplift offers point-of-sale loans through partners like Southwest Airlines and Kayak.

Indeed, with a wide range of flexible payment options, BNPL providers want to change the way people take their next vacation.
But is it worth it for either providers or consumers?

The Pros of BNPL

Let’s see if we can work out the answer to that question by looking more closely at the pros and cons for using BNPL when traveling.

Better Control

BNPL allows people to better control when and how they spend their money. That’s because they pay off purchases in specific installments that fit within a given budget. It’s true most BNPL providers set the total number of payments at four installments. But others allow borrowers to expand their payment schedule to include additional repayment portions to give people even more options.

The ability to see ahead to the ultimate cost of a vacation, or at least the total travel purchases involved, gives buyers a a more secure level of control over how—and how much—they spend.

More Convenience and Accessibility

BNPL is also a more convenient option because there is no third-party lender involved. Users can apply online and be approved almost instantly, depending on the payment platform. This means there aren’t the usual hassles or hoops to jump through when you’re applying for traditional loans. This creates seamless payment opportunities without the need for a hard credit check or other barriers that usually hold users back.

Newer Options

There are also implications for the future as payment innovations like BNPL tip the scale from traditional lines of commerce into lending models that are more digital.

If consumers become more comfortable with non-traditional buying options, and BNPL becomes more mainstream, that means there will eventually be newer options—such as embedded payments—to complement more convenient features across platforms.

If payment options are all embedded within platforms, this benefits companies and consumers throughout the travel sector in three ways. It increases revenues through monetized payments, offers additional value-added services, and improves the overall buying experience.

The Cons of BNPL

Hidden Fees

Consumers should read the fine print to make sure they’re well-informed on credit reporting, return policies, interest rates, and late fees for purchases. The desire to spend on once-in-a-lifetime experiences like a vacation is strong. But the inability to pay on time down the road could saddle unaware buyers with late fees.

These fees could cripple a person’s ability to apply for loans moving forward. And penalties are not a good way to build credit.

Unhealthy Spending Habits

BNPL opened a quick and easy new door to those who wouldn’t be able to take these trips in the past without financial installment options. But it also made it easy to overspend or cultivate a habit of taking too big a leap on products and services that are truly out of reach.

BNPL offerings can make a purchase seem more affordable than it is, and payments can add up beyond the initial amount and beyond due to unwieldy interest rates.

The Impact of Inflation

A July 2022 survey from the Federal Reserve Bank of New York found that inflation is expected to grow at a 6.2% pace over the next year. Currently, airlines and lodging continue to show signs of strong demand, with the airline segment up 18.2% and lodging growing to 33.7%.

This means that as inflation continues to increase, the only way consumers can avoid rising prices—and not fall into the big-ticket spending habit mentioned above—is by tightening budgets and dealing with a potential recession where luxury spending, including travel, will likely be the first expense to go.

Consumers’ inability to pay off BNPL purchases will make it more expensive and riskier for companies to do business with BNPL providers. One thing potential travelers will look out for is, as interest rates increase, how much will the BNPL companies take in and how much will be passed on to the consumer?

Despite the pros and cons, those who acknowledge BNPL’s risks while taking advantage of the benefits could drive this past the fad stage. After years of restrictions, pent-up demand must be balanced with budgetary realities for any major purchases.

—Ralph Dangelmaier is the chief executive of BlueSnap.