SAN FRANCISCO – As Americans shop for the holidays, they’ll likely see a plethora of offers to get their freebies now, but pay them off later in fixed monthly installments.
Powered by several hot Silicon Valley startups as well as major credit card companies, “Buy Now, Pay Later” is now available to purchase a Peloton exercise bike along with a fancy floral bouquet.
Thousands of retailers large and small often have the option on their websites to pay for a purchase in installments at checkout. In the case of credit cards, customers are allowed to create fixed payment plans within days or even weeks after purchase.
Americans seem to be impatient to try this financial option, which has been common outside the United States for some time. Major credit card company says about six of its ten U.S. customers launched a buy-it-now-and-pay program later for the first time this year, and the Silicon Valley-backed companies that offer those plans see tens of thousands of new customers every week.
“My shopping habits can be a bit impulsive, so I like the ability to split them up into multiple payments,” said Shahin Rafikian, 26, who lives in Los Angeles and has used several buy-it-now and retail services. later payment to buy a concert. tickets, vinyl records and other items.
Rafikian said he likely would have bought fewer high-value items if the cost had simply been passed on to a credit card that was never refunded.
Industry advocates say buy-now and pay-back programs are preferable to credit cards because there are fixed monthly payments and any interest is clearly stated up-front. Consumer advocates, generally skeptical of any new financial product, have also been relatively more positive about buying it now and paying later, as any plan would have a start and end date. Most of their concerns are about the fees that could be associated with late payments.
“These products encourage people to pay for their purchases faster and usually with less interest, but if people use them to just buy more than they should and go above and beyond, pay late fees, etc., help. they really manage people’s expenses? ” said Lauren Saunders, associate director of the National Consumer Law Center.
Adobe Digital Economy Index, which analyzes direct online consumer transactions. said revenue from the Buy Now and Pay Later plans increased 21% from a year ago.
Buying now, paying later is not a new product – services or products like layaway, monthly payments for large purchases, and even retail credit cards have been around for decades. What is different is the way it is delivered and who provides the service.
Instead of asking a customer to apply for a branded credit card, which often can only be used at that retailer, companies have added financing options provided by third-party companies such as Affirm, Afterpay, or PayPal when they go online. online payment.
There are generally two different types of buy-now and pay-on-payment services: short-term payment plans that divide a purchase into four or six bi-weekly payments, and long-term loan-type products offered by Affirm.
PayPal co-founder Max Levchin started Affirm in 2012. The $ 32 billion company went public this year.
With its buy it now and checkout widget on the websites of many retailers, the company has experienced robust growth over the past few years. Affirm said in November that 8.7 million Americans were using its buy it now and pay later services, more than double the level of a year ago. The company signed 1.6 million new clients in the United States and Canada in the past 90 days.
Two large retailers – Walmart and Target – have partnered with buy-it-now and pay-late companies like Affirm. Walmart got rid of its buy now, pay later layaway program.
The cost of paying over time may vary with Affirm and other Buy-It-Now and Pay-On-Pay providers. A six to eight week purchase may bear no interest. In some cases, the merchant has decided to pay the interest for the customer. But other consumers could pay up to 30% annual interest on those big purchases with Affirm.
Afterpay does not charge interest on its purchases, but charges borrowers a late fee if they miss a payment, up to 25% of the loan value. Affirm does not charge late fees on purchases, but is generally willing to lend larger amounts and charge interest on longer term loans.
Credit card companies, seeing the potential impact of buying now and paying late on their business model, have tried to adapt. American Express, JPMorgan Chase, and Citigroup now all offer similar payment plans for items purchased with their cards. A report by consulting firm McKinsey found that buy-now and pay-later startups embezzled between $ 8 billion and $ 10 billion in revenue from traditional banks that would likely have funded those purchases a few years ago.
AmEx said 58% of its customers have put purchasing plans in place for the first time this year, and more than $ 5 billion in purchases have been put on “Pay It, Plan It” agreements.
The rapid growth of buy now and pay later has also caught the attention of politicians and regulators. The House financial services committee held a hearing on the buy-it-now and payout programs later last month. Lawmakers have called on the Consumer Financial Protection Bureau to put more emphasis on tracking the growth of this type of financing.
“These products raise important questions about the use of consumer data, the exploitation of spending patterns, the enforcement of loan laws and the potential for unsustainable consumer debt levels,” said the representative. Steven Lynch, D-Massachusetts.
The concern about overspending with these programs is real, Rafikian said.
“At first it was fun to have access to items generally out of my price range, but sometimes you’re surprised and a little unhappy to have all these new payments due,” he said.