Revolutionizing Finance: The Impact of 'Buy Now, Pay Later' on Economic Policies

Deputy Governor of RBI, Michael Debabrata Patra, highlights the challenges posed by 'buy now, pay later' schemes and credit card spending on young consumers' savings and traditional monetary policies.

The Deputy Governor of the Reserve Bank of India, Michael Debabrata Patra, has raised alarms regarding the 'buy now, pay later' schemes and credit card spending, cautioning about their potential to diminish savings among younger generations.

Addressing the Maldives Monetary Authority Research Conference in Male, Patra shed light on how these modern financial technologies are altering consumer behavior, subsequently challenging the effectiveness of traditional economic policies. He remarked on the tendency of these systems to promote immediate consumption while undermining savings habits, particularly among youth.

Patra outlined several obstacles arising from the swift embrace of digital financial solutions. Key issues include weakening the transmission of monetary policy to the real economy and the risk of debt escalation at the household level, potentially inducing financial strain. Concerns were also expressed over possible financial mismanagement due to inadequate digital financial literacy.

To combat these issues, Patra proposed that central banks and policymakers need to update their strategies. This may involve evolving from conventional macroeconomic models to modern approaches that incorporate behavioral economics and advanced stress tests.

He emphasized the mounting importance of the digital economy, citing its growing contribution to global GDP and the expected benefits from advancements like generative AI. Patra's insights underline the need for central banks to adapt to financial technological advances.

(With inputs from agencies.)