NEW YORK–The growth of buy now, pay later (BNPL) solutions continues to draw national attention, with one analysis suggesting as many as 125-million people have now used the financing option.
As CUToday.info has reported, and as the New York Times has profiled, retailers from Amazon to Walmart to the neighborhood boutique are buying in on the financing concept, too.
“The option to buy now and pay later has soared in popularity, accelerating last year as consumers bought almost everything online at the start of the pandemic,” noted the Times. “But the little buttons under those Lululemon leggings or that new TV that suggest spreading your purchase over six weeks or more — often at no cost — are expected to change spending habits in lasting ways.”
“I think of it as a credit card, without interest,” Jenna Kellett, 27, a personal assistant in Dublin, Ohio, told the Times. Kellett was enough of a fan of one of the leading services, Afterpay, that she became a moderator on a Facebook group where members track new features and follow participating retailers.
The Times noted that younger adults — who have now lived through two major economic upheavals — have embraced the services, similarly to the way they’ve favored debit cards over credit and all that it represents.
‘Becoming a Trend’
“Their preferences are starting to become the trend,” said Nick Molnar, co-founder and co-chief executive of BNPL provider Afterpay, who said 90% of the company’s users pay later using a debit card.
According to the Times, Afterpay and Affirm — along with competitors like Sezzle, Klarna and Zip — are only beginning to push into territory long dominated by credit cards, which accounted for 30.4% of online sales in the United States last year.
“That’s far more than the 1.7% from pay-later services,” the Times stated, “But their share is expected to nearly triple to 4.8% of sales — or $79.7 billion — by 2024, according to Worldpay, a payment processing firm. They’re already more established overseas: Pay-later accounts for 23% of online transactions in Sweden, almost 20% in Germany and is also popular in Norway, Finland, Australia and New Zealand.”
125-Million Users
Ginger, Schmeltzer, a senior analyst for research and advisory firm Aite-Novarica, told the Times there are an estimated 125 million pay-later users at the top six providers worldwide, though that includes people using multiple platforms.
“Now, it is like a hockey stick. What we are seeing is that it is not slowing down,” said Schmeltzer.
As CUToday.info has also reported, and as the Times explained, the concept of BNPL is straightforward: “The purchase price is usually split into four interest-free installments, with the first payment generally due at checkout. It’s smoothly embedded in the shopping experience, offering almost immediate approval — sometimes not even requiring a so-called soft credit inquiry, which doesn’t affect your credit score in any case,” the Times report stated. “There are generally no finance charges, or additional fees if you pay on time. But some services, including Affirm, may charge interest to some consumers using certain payment products.”
Fees & Pricing
Pay-later services usually charge late fees for missed payments, starting around $7 each and sometimes capped at 25% of the total spent, according to the Times. “They will cut off users until they catch up, and can reduce their spending power once they have.”
And though several providers say they don’t report payment behavior or outstanding debts to the credit bureaus, serious delinquencies may show up eventually, the report continued.
Some companies, including Affirm, Afterpay, Klarna and Zip, reserve the right to send the account to a debt collector, which can lead to repeated phone calls or other efforts to recover outstanding balances.
The Times further noted that many BNPL providers will also let consumers create a virtual card in just a few minutes, with hundreds of dollars made available to spend at participating retailers.
Even though BNPL services can be three times as expensive to offer as credit cards, costing businesses between 2% and 8% of the transaction amount, the additional sales helps offset the cost and is the lure to retailers.
Consumer Advocates Concerned
Consumer advocates told the Times they worry about the potential implications of these growing services.
“Pay-later usage generally isn’t reported to credit bureaus like Equifax and TransUnion, so there’s nothing stopping people from juggling multiple services. And their varying policies can lead to unpleasant surprises,” the report explained.