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

SAN FRANCISCO  — As Americans shop for the holidays, they will likely see a swarm of offers to get their gifts now but pay for them later in fixed monthly installments.

Fueled by several hot Silicon Valley startups as well as a push by the big credit card companies, “buy now, pay later” is now available for purchasing a $1,500 Peloton exercise bicycle as well as a $60 floral bouquet. Thousands of retailers, big and small, often have added the option on their websites to pay for a purchase in installments at checkout.

“My shopping habits can be a bit impulsive, so I like the ability to break it up over several payments,” said Shahin Rafikian, 26, who lives in Los Angeles and has used several buy now, pay later services to purchase concert tickets, vinyl records and other items.

Industry advocates say buy now, pay later programs are preferable to credit cards because there are fixed monthly payments and any interest is clearly stated upfront. Consumer advocates, typically skeptical about any new financial product, also have been relatively more positive about buy now, pay later since any plan would have a beginning and end date.

“These products do encourage people to pay purchases off quicker and usually with less interest, but if people are using them to simply buy more than they should and getting over their heads, paying late fees, etc., are they really helping manage people’s expenses?” Lauren Saunders, associate director for the National Consumer Law Center, said.

Adobe Digital Economy Index, which analyzes direct consumer transactions online, said revenue on Cyber Monday from buy now, pay later plans rose 21% from a year ago.

Buy now, pay later is not a new product — services or products such as layaway, monthly payments on large purchases and even retail credit cards have existed for decades.

Instead of telling a customer to apply for a store-branded credit card, retailers have added financing options provided through third-party companies such as Affirm, Afterpay or PayPal at their online checkout.

Affirm said it has seen extreme growth in the past few years. The company said in November that 8.7 million Americans are using its buy now, pay later services, more than double from a year ago. The company signed up 1.6 million new customers in the U.S. and Canada just in the last 90 days.

Credit card companies have tried to adapt. American Express, JPMorgan Chase and Citigroup all now offer similar payment plans for items purchased on their cards.

A report by consulting firm McKinsey found that buy now pay, later startups diverted between $8 billion and $10 billion in revenue from traditional banks that would have likely financed these purchases a few years ago.

from Boston Herald https://ift.tt/3rtlWbo