‘Buy now, pay later’ catches on just in time for holidays

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Following entry by several fintech companies as well as large credit card companies, Americans now have the option of “buy now, pay later” on everything from $1,500 Peloton cycles to $60 flower bouquets.

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SAN FRANCISCO — As Americans shop for the holidays, they’ll likely see a slew of offers to not only receive their gifts but pay for them later in fixed monthly installments.

A push by several hot Silicon Valley startups as well as large credit card companies, the “buy now, pay later” $1,500 Peloton exercise bicycle is now available for purchase as well as a $60 floral bouquet. Thousands of retailers, large and small, often have the option of paying for purchases on their websites in installments at checkout. In the case of credit cards, customers are being allowed to create fixed payment plans for days or even weeks after purchase.

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It looks like Americans are going to try this financial option, which has been common outside the US for some time. A major credit card company says that six out of every 10 of its U.S. customers have just started shopping, the first time this year is Pay Later, and the Silicon Valley-backed companies that offer these plans will see thousands of new customers. are getting. per week.

“My shopping habits can be a little impulsive, so I love the ability to break it on multiple payments,” said 26-year-old Shaheen Rafiqian, who lives in Los Angeles and uses many Buy Now, concert tickets to buy. Pay for aftermarket services, vinyl records and other stuff.

Rafikian said he probably would have bought less big-ticket stuff if the cost had just gone to a credit card that was never paid for.

Industry advocates say that Buy Now, Pay Later programs are preferable to credit cards because there are fixed monthly payments and any interest is clearly stated in advance. Consumer advocates, who are generally skeptical about any new financial product, have been relatively more positive about buying now, pay later as any plan will have a start and end date. Most of their concerns are related to any charges that may be associated with the late payment.

“These products encourage people to pay off purchases early and usually with low interest, but if people are only using them to buy more than they need and are in over their heads, it’s too late. Paying fees, etc., are they really helping people manage their expenses?” said Lauren Saunders, associate director of the National Consumer Law Center.

Adobe Digital Economy Index, which analyzes direct consumer transactions online. Said Cyber ​​Monday saw a 21% increase in Buy Now, Pay Later plans compared to a year ago.

Buy now, pay later is not a new product – services or products such as takeaways, monthly payments on large purchases and even retail credit cards have existed for decades. It differs in how it is being offered, and who is providing the service.

Instead of asking a customer to apply for a store-branded credit card, which can often only be used at that one retailer, companies add to their online checkout through third-party companies such as Affirm, Afterpay or PayPal. There are added financing options provided.

There are generally two different types of purchase pay later services: short-term payment plans that break up purchases into four or six bi-weekly payments, and long-term installment loans-like products that provide confirmation. Huh.

PayPal co-founder Max Levchin started Affirm in 2012. The $32 billion company went public this year, effectively making Levchin the latest PayPal alumnus to become a billionaire.

With the Buy Now, Pay Later widget on the websites of many retailers, the company has seen tremendous growth over the years. Affirm said in November that 8.7 million Americans are using its Buy Now, Pay Later services, more than double the number from a year ago. The company has signed 1.6 million new customers in the US and Canada in the last 90 days.

Thousands of Americans became familiar with the Affirm and Buy Now, Pay Later option through its partnership with exercise equipment company Peloton.

One of them is Fallen Oser, a 26-year-old content strategist who lives in Ohio. She bought a Peloton bicycle last summer, when lockdown drew many Americans to at-home exercise equipment.

“I got student loans, so I knew I was taking on some responsibility here by taking out loans. But it made shopping more accessible and it worked for my budget,” she said.

Levchin, 46, said he started Affirm partly because credit cards ruined his credit when he was younger and buried him in interest and fees. He said he wanted to create an economically sound product that would allow people to buy things on credit.

“We knew it was going to be huge a long time ago. It’s on the kind of scale right now where it’s basically impossible to ignore,” Levchin said in an interview in San Francisco.

The option to spread out more regular purchases is going to become even wider over time in the coming months. At a cafe, Levchin paid for a $22 lunch by dividing the payments into four biweekly payments of $5.50. The company is testing a debit card that would allow customers to decide whether to pay the total for any purchase or spread it out over time.

The cost of doing pay-over-time may vary with Affirm and other purchase, pay later providers. Six to eight weeks’ worth of purchases may not hold any interest like a $22 lunch. In some cases, the merchant has decided to pay interest for the customer. But other consumers can pay 30% annual interest on these large purchases with Affirm.

Afterpay doesn’t charge interest on their purchases, but does charge borrowers a late fee of up to 25% of the value of the loan if they miss a payment. Affirm does not charge late fees on any purchases, but is generally willing to lend larger amounts and charge interest on longer-term loans.

Buy now, pay later is not showing interest in slowing down.

A September study authored by consulting firm Accenture, but commissioned by Afterpay, estimates that about 6% of all dollars spent online will be on purchase now, pay after programs by the end of the year. This figure is projected to account for 13% of all spending by 2025. A few years ago this figure was basically zero. Two major retailers — Wal-Mart and Target — have partnered with Buy Now, Pay Later companies like Affirm. Wal-Mart got rid of its takeaway program in favor of Buy Now, Pay Later.

Credit card companies have tried to build on their business model to pay later, given the potential impact of the purchase now. American Express, JPMorgan Chase and Citigroup all now offer similar payment plans for items purchased with their cards. A report from consulting firm McKinsey found that Buy Now Pay Later startups diverted between $8 billion and $10 billion in revenue from traditional banks, which could have financed these purchases a few years ago.

AmEx said 58% of its customers have established a purchase plan for the first time this year, and that more than $5 billion of purchases have been made on “pay it, plan it” agreements.

The rapid growth of Buy Now, Pay Later has also attracted the attention of politicians and regulators. The House Financial Services Committee held a hearing on buy now, pay later programs earlier this month, where politicians asked the Consumer Financial Protection Bureau to place greater emphasis on monitoring the development of this type of financing.

“These products raise important questions about the use of consumer data, the exploitation of spending patterns, the application of lending laws, and the potential for volatile levels of consumer credit,” said D-Massachusetts representative Steven Lynch.

Rafikian said the concern about overspending with these programs is real.

“At first it was usually fun to access items that are out of my price range, but sometimes you’re surprised and a little sad that you have all these new payouts due,” he said. They said.

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