“Buy Now, Pay Later” catches just in time for the holidays

San Francisco – When Americans shop for vacations, they will now see a swarm of offers to get their gifts, but later pay them in fixed monthly installments.

Backed by the push of some hot Silicon Valley start-ups and major credit card companies, “buy now, pay later” will now be able to buy a $ 1,500 Peloton exercise bike and a $ 60 flower bouquet. became. Thousands of retailers, large and small, often have options on their websites to buy in installments at checkout. For credit cards, customers are allowed to create fixed payment plans within days or weeks of purchase.

Americans seem to be a little challenged to try this financial option, which has been common outside the United States for some time. According to one major credit card company, about 6 out of 10 US customers buy now, launching their first postpaid program this year, and tens of thousands of Silicon Valley-backed companies offering these plans. There are new customers. Every week.


“My shopping habit can be a bit impulsive, so I like being able to split it into multiple payments,” said living in Los Angeles, currently using several purchases and concert tickets. Shahin Rafikian, 26, who later pays for the service to buy. Vinyl records and other items.

Rafikian said that if the cost was paid to an unpaid credit card, the purchase of high-value items was probably low.

Industry advocates say that programs that pay later are preferable to credit cards because they buy now, have fixed monthly payments, and have clear interest rates in advance. Consumer advocates are usually skeptical of new financial products, but because plans have start and end dates, they are also relatively willing to buy now and pay later. Most of their concerns are about charges that may be related to late payments.

“These products encourage people to pay off their purchases faster, usually with less interest, but they simply buy more than they need to, get over their heads, and pay late fees. If you’re using them for, do they really help manage people’s costs? “Lauren Sanders, deputy director of the National Consumer Law Center, said.


Adobe Digital Economic Index, which analyzes direct consumer transactions online. Revenue from buying now on Cyber ​​Monday said the postpaid plan increased by 21% from a year ago.

Buying now and paying later is not a new product. Services and products such as reserves, monthly payments for bulk purchases, and even retail credit cards have been around for decades. The difference is how it is provided and who provides the service.

Instead of instructing customers to apply for a store-branded credit card that can only be used at that one retail store, the company is often offered through third-party companies such as Affirm, Afterpay, and PayPal at online checkout. Added funding options.

There are usually two different types of purchases now, a service that you pay for later. Products like short-term installment plans that split purchases into 4-6 installments every other week and long-term installment loans offered by Affirm.


PayPal co-founder Max Levchin launched Affirm in 2012. A $ 32 billion company was unveiled this year, making Levchin a billionaire, effectively the latest PayPal graduate.

By buying now and paying widgets later on many retailer websites, the company has grown tremendously over the past few years. Affirm said in November that 8.7 million Americans bought now, paid for later services, and more than doubled from a year ago. The company has acquired 1.6 million new customers in the United States and Canada over the last 90 days.

Tens of thousands of Americans are familiar with Affirm, and through a partnership with exercise equipment company Peloton, they now have the option to buy now and pay later.

One of them is Fallon Oeser, a 26-year-old content strategist from Ohio. She bought a Peloton bike last summer when the blockage attracted many Americans to their home exercise equipment.

“I have a student loan, so I knew I had some responsibility here for taking out a loan, but it made the purchase more accessible and worked well on my budget.” She said.


Levchin, 46, said he started Affirm because his credit card ruined his credit when he was young and filled him with interest and fees. He said he wanted to make a financially healthy product that would allow people to buy things with credit.

“We knew it would be huge long ago, Levchin said in an interview in San Francisco.

The option to spread more regular purchases over time will become even more widespread in the coming months. At the cafe, Levchin paid $ 22 for lunch by splitting the payment into $ 5.50 four times every other week. The company is testing debit cards that allow customers to decide whether to pay the total purchase or expand over time.

The cost of doing a payover time depends on Affirm and other purchases now and paying the provider later. With a 6-8 week purchase, you may not be interested at all, like a $ 22 lunch. In some cases, the merchant decides to pay interest to the customer. However, other consumers may pay as much as 30% interest annually on these large purchases using Affirm.


Afterpay does not charge interest on the purchase, but if the borrower misses payment, it will charge a late fee of up to 25% of the value of the loan. Affirm does not charge late fees for purchases, but is usually prepared to lend more and charge interest on longer-term loans.

The interest in buying now and paying later does not seem to slow down.

Created by consulting firm Accenture, but commissioned by AfterPay, a September survey estimates that about 6% of all money spent online will be purchased now and paid for later programs by the end of the year. I am. This figure is projected to be 13% of total spending by 2025. This number was basically zero a few years ago. Two major retailers, Wal-Mart and Target, buy now and pay to later companies like Affirm. Wal-Mart has abolished the layaway program in favor of buying now and paying later.

Credit card companies have seen the potential impact of buying now and paying for their business model later and have tried to adapt. American Express, JPMorgan Chase and Citigroup all offer similar payment plans for items purchased with a card. With a report from consulting firm McKinsey, if you buy now, later startups will divert revenue from traditional banks that seemed to have funded these purchases a few years ago from $ 8 billion to $ 10 billion. bottom.


According to AmEx, 58% of customers planned their purchases for the first time this year, with over $ 5 billion in purchases under the “PayIt, PlanIt” deal.

The rapid growth of buying now and paying later has also attracted the attention of politicians and regulators. The House Financial Services Commission held a hearing earlier this month on purchasing now and paying for later programs. There, politicians called on the Consumer Finance Bureau to focus more on monitoring the growth of this type of financing.

“These products raise important questions about the use of consumer data, the use of spending patterns, the application of lending laws, and the potential for unsustainable levels of consumer debt,” D-Massachusetts said. Stephen Lynch said.

Concerns about overspending on these programs are real, according to Rafikian.

“At first, it was usually fun to access items outside my price range, but it can be surprising or a bit disastrous to get all these new payments paid,” he said. rice field.

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“Buy Now, Pay Later” catches just in time for the holidays

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